Morrison reported a 3.6% increase in like-for-like (LFL) sales, excluding fuel, in the nine weeks to 6 January - growth was again mostly driven by wholesale. That increase was slower than the 5.6% LFL growth seen in Q3.
The shares fell 1.3% on the news.
CEO David Potts' plans for Morrison make perfect sense; focus on the consumer, reinvest in pricing and improve the stores' appeal.
Progress so far is promising, and like-for-like sales are back in positive territory. But there's more to the story.
Potts has a vision of a 'new Morrisons', which includes several capital-light wholesale agreements. Deals have been signed to roll out convenience stores on petrol forecourts in partnership with Rontec, supply Amazon Fresh with groceries, and revive the Safeway brand through a deal with McColl's.
With the majority of stores owned rather than leased, the group already has strong cash flows, which help support the dividend. The shares currently offer a prospective yield of 4.3%, and analysts expect the payout to rise over the coming years.
But there are still a few weak spots. Morrison lacks a convenience footprint of any scale and its online offering relies on a partnership with Ocado. It's got a long way to go to catch up with rivals like Sainsbury and Tesco.
The sector is more competitive than ever too. The merger of Asda and Sainsbury would be a headache, while Tesco's made moves into wholesale, and set up its own discount store chain. Plus, German disruptors Aldi and Lidl are winning the battle for market share. Morrison's transaction numbers and sales are slowing down, even as its prices stay low.
A healthy balance sheet and those attractive cash flows gives the company breathing space, but time will tell just how much of a blow its rivals will serve. Longer-term, investors will want to see Morrison protect market share and grow its profit margin, currently just 2.6%.
For now, the shares trade on 15.6 times expected earnings, slightly above the longer-term average of 13.8.
Christmas Trading Update
Retail contributed 0.6% to group like-for-like (LFL) sales, with Wholesale accounting for 3%. Both are slightly behind the growth seen in recent updates.
Despite a wider change in 'consumer behaviour during the period', total sales excluding fuel increased 4%.
The group says it has remained competitive on price, with the average price of key Christmas items unchanged year-on-year.
On a LFL basis, the number of in-store transactions was down 0.9%, compared with a 0.2% increase last quarter. However, the number of items per basket increased 0.8%, which was an improvement on Q3's 1.5% decline.
Customer satisfaction increased significantly during the period, with particular improvements made to colleague friendliness and checkout experience.
Full year expectations remain unchanged.
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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