Beleaguered supermarket chain Morrisons (MRW) has continued to outperform expectations during the first quarter of its financial year, reporting a 0.7 per cent improvement in underlying sales, excluding fuel, despite an overall deflation rate of 2.6 per cent. Total non-fuel sales fell 1.8 per cent, reflecting store closures and the decision to exit the convenience market last year.
What's new ■ Second consecutive quarter of growth ■ Growth in transactions and volumes ■ Forecasts held |
Under chief executive David Potts, Morrisons has been tackling its issues head on. It remained competitive on pricing, which helped drive strong volume growth and a 3.1 per cent improvement in like-for-like transactions. Transaction growth was also helped by higher sales of the Food to Go range, as well as new self-scan checkouts which allow customers to shop more often and pay faster. However, the impulse to shop more frequently means items per basket continues to fall, this time down 2.8 per cent during the first quarter.
Mr Potts says the plan is to keep investing in new products and improving the customer shopping experience, but he admitted the board was pleased to be able to report a second consecutive quarter of positive like-for-like growth. The group had a far better-than-expected Christmas period, reporting a 0.1 per cent improvement in like-for-like sales against wider industry deflation of 3 per cent.
The only disappointment had to be the lack of further detail on the group’s recently signed supply agreement with US giant Amazon (US:AMZ).
Shore Capital says…
Neutral. We deem the delivery of 0.7 per cent like-for-like sales growth to be a good achievement by a self-improving organisation under the leadership of David Potts. While that performance was set against a favourable comparative decline of 2.9 per cent this time last year, it beats our expectation of flat same store sales. If Morrisons sustains robust ongoing trading and if industry conditions remain rational, albeit competitive, then there may be scope for us to nudge up our profit forecasts. For now, we expect pre-tax profits of £330m, giving EPS of 10.6p. That implies 9.7 per cent year-on-year growth.
Steifel says…
Hold. The like-for-like sales growth rate of 0.7 per cent is ahead of our flat expectation, and has been driven by accelerating transaction growth, reflecting improvements to the proposition and execution of strategy. We continue to think management is doing all the right things, and playing the right long game, but this will take time to translate into profit growth. We anticipate no change to consensus forecasts on the back of this update and with the shares trading on a fairly high multiple we think upside is limited. We therefore stick with our recommendation.
