Morrisons has released a trading statement showing that in the 13 weeks to 30 April group like-for-like (LFL) sales excluding fuel were up 3.4%, with Retail contributing 3% and Wholesale 0.4%. The shares rose 1.8% on the news
CEO David Potts' strategic plans for the group make perfect sense; focus on the consumer, reinvest in pricing and improve the stores' appeal. While he may still describe the group as a work in progress, that progress is becoming increasingly tangible. Customers are coming back and like-for-like sales are now firmly back in positive territory.
Finance costs are falling as debts are repaid, and with around 85% of stores under freeholds, Morrisons has low rental obligations. This gives the group strong cash flow, and helps support the dividend. The shares currently offer a prospective yield of 2.5%, and analysts are expecting the payout to increase in the coming years.
Looking ahead, the group's expansion plans focus on capital-light wholesale agreements. Its plans include rolling out convenience stores on petrol forecourts in partnership with Rontec, supplying Amazon Fresh with groceries and reviving the Safeway brand.
With billions of pounds of sales and attractive cash generation, Morrisons certainly has potential. However, it still faces many challenges. The absence of a convenience footprint of any scale, and the fact its online offering relies on a partnership with Ocado, are just two examples of areas where the group is lagging behind.
The fall in sterling has added further uncertainty too. With the cost of imported goods rising, relationships all the way along the chain from producer to consumer are at risk of disruption. While it will want to keep prices low to stay competitive, profit margins of under 3% mean Morrisons has little room for manoeuvre if suppliers refuse to take the currency-induced hit.
Q1 trading update
Morrisons says that sales were strong over the key events in the quarter, Valentine's Day, Mother's Day and Easter, with customer satisfaction levels again improving.
During the period, the group further expanded its Best' range and introduced a healthy 'Eat Smart' range. 'Morrisons at Amazon' continues to grow, with the same-day and one-hour delivery service recently extended across London postcodes.
David Potts, CEO of Morrisons said the group is "improving the shopping trip in many different ways, which is making Morrisons more popular and accessible for customers. These new initiatives in-store, online, in wholesale and services are beginning to build a broader, stronger Morrisons."
Morrisons' expectations and guidance for 2017/18 are unchanged, including year-end net debt of less than £1bn.
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