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Morrison (Wm) Supermarkets (MRW) Ordinary 10p

Sell: 185.30pBuy: 185.40p03.50p (1.93%)
FTSE 1000.00%
Market closedPrices as at close on 27 August 2014Prices delayed by at least 15 minutes | Switch to live prices |
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HL comment (8 May 2014)

First quarter update: The supermarket operator announced a fall in like-for-like or same store sales which exceeded broad analyst expectations. Sales excluding fuel fell by 7.1. Total group sales for the period, again excluding fuel, retreated by 4.2%. The share price declined by over 3% in early morning stockmartket trading. The most recent survey from market research company Kantar saw discounter Aldi's sales growing at a record-high 36.1% year-on-year in the 12 weeks to April 27, taking its market share to a record 4.7%. Lidl's sales rose 20.9%, its highest growth since August 2004, giving it a record 3.5% market share. Aggressive price competition has seen Morrisions suffering hits to both sales and profitability.

Nonetheless, the group is trying to fight back. The Chief Executive noted that "The plans we set out at our results in March are on track. The reaction of our customers to the 1,200 "I'm Cheaper" price cuts we announced last week has been very positive. Although it will take time for their full impact to be felt, we are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers." On balance, analyst consensus opinion currently points towards a hold.

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Negative Points:
  • First quarter sales excluding fuel fell by 7.1%. Analysts had forecast a fall of around 5%. Total group sales for the period, again excluding fuel, retreated by 4.2%.
  • For the full year 2013, the supermarket chain reported a pre-tax loss of £179 million compared with a profit of £879 million from a year earlier. Revenues for the full year ended 2nd February declined by 2% to £17.7 billion. The company was hurt by a one-off £903 million exceptional write-down, due to property and IT costs and a disappointing performance from Kiddicare, its baby products business. The group said it will look to sell Kiddicare in 2014. It also warned that profits for the current year (2014/15) would be less than £375 million, around half the level of last year.
  • Competition remains fierce in the supermarket space. The discount supermarkets have become a thorn in the side for the bigger players. Convenience, online and the discount channels are seen as the fastest growing sectors of the market.
  • Consumers have continued to face challenging economic conditions. Many customers have been constrained financially and have had to choose carefully where they shopped.
  • Unlike some rivals, the group does not enjoy any degree of international diversity.
  • The grocer has also been slow to recognise the move from big out-of-town stores to local convenience stores.

Positive Points:
  • In March, management announced plans to realise savings of £1 billion over the coming three years to strengthen its business and reinforce its core customer proposition. In Early May (2014), it announced plans to cut prices permanently on over 1,200 of the products.
  • Morrisons long awaited online offering - Morrison.com launched in January 2014.
  • During the quarter, Morrisons opened two core stores from its remaining pipeline as well as a further 11 M local convenience stores. It remains on schedule to meet its target of having up to 200 convenience stores open by the end of the year.
  • Management noted that "By the year end our online business will reach up to 50% of UK households and, together with convenience, is expected to account for over £500 million of annualised sales."
  • Morrisons property portfolio has an estimated market value of around £9 billion. Over 90% of its core estate is freehold, a considerably greater proportion than its major competitors (source: Morrison (Wm) full year results 13 March 2014).
  • In a sign of confidence in Morrisons strategic direction, the Board said it is committed to 5% minimum increase in the dividend for 2014/15 and a progressive and sustainable dividend thereafter.

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