What's new:
■ Falling sales
■ Pressure on chief executive
■ Concerns over strategy
Things are going from bad to worse for stricken grocer Morrisons (MRW). A trading statement last week revealed a 4.2 per cent decline in first-quarter revenue, and an eye-watering 7.1 per cent slump in like-for-like sales. That sparked a further fall in the share price, which is now 31 per cent lower than it was a year ago.
Chief executive Dalton Philips insisted the plans he announced earlier in the year to get shoppers back through the doors - centred on millions of pounds worth of price cuts, alongside serious cost savings - were on track. Given that the plans were only announced in mid-March, this is hardly reassuring.
Hoping to compete with Tesco and Asda, Lidl and Aldi, Morrisons has already axed prices on more than 1,200 products. More price cuts are to come, funded in part by selling off some freehold property and in part through £1bn of cost savings over the next three years. The supermarket also reported it was on track to have 200 convenience stores running by the year-end, while the first online deliveries in London are due on 12 May. Combined, the online and convenience channels are expected to account for more than £500m of annualised sales by the end of the year.
Cantor Fitzgerald says...
Buy. The market is taking a view that Morrisons has lost its way and won't be successful in driving volume growth by cutting prices. As such, Dalton Philips' survival depends on whether those volume figures are strong enough. The risk is that price cuts are simply bringing the grocer in line with Tesco and Asda. If so, is Morrisons strategically differentiating itself? Do you know the name of its up-market brand? Probably not, but you know Sainsbury's Taste the Difference and Tesco's Finest. That's a problem. Yet we remain buyers because the enterprise value per sq ft is at an all-time low of £500 - below rebuild cost and even lower than when Morrisons took write-downs after acquiring Safeway.
Shore Capital says...
Sell. Morrisons has been forced to change strategy. Three years ago it ventured down the line of 'fresh' formats, which was about visual appeal and going upmarket. But it was the wrong move at the wrong time, alienating traditional value-oriented Morrisons shoppers while failing to attract new shoppers. That corresponded with a remarkably weak trading backdrop and changing competitive conditions - a perfect storm. This led to the new strategy announced in March, which reverts back to price and value. Strategically, we are happy with this new direction, but it has been a very costly exercise. Just 15 months ago we were forecasting pre-tax profit of £1.07bn for the year to January 2015. Now we are looking at £325m - and judging by recent trading Morrisons may not even be able to delivery that.
