Morrisons Christmas sales up 9.3% as Covid costs rise

Supermarket chain Morrisons on Tuesday reported a 9.3% rise in like-for-like sales over the key Christmas and New Year period, boosted by more Britons dining at home amid coronavirus restrictions.

Customers bought their festive period food and drink earlier than in previous years as large family gatherings were restricted, Morrisons said, with champagne sales increasing 64%, whole salmon up 40% and gluten-free mince pies 14% higher.

Online sales had tripled in the fourth quarter, with a sustained increase in customer demand. Sales in Morrisons established stores rose 7.3% in the nine weeks to January 3, boosted by a 1.2% rise in wholesale sales through its new deal with Amazon and to supply convenience stores. The company added that customer and brand metrics had all improved.

For the 22 weeks to January 3, group like-for-like sales excluding fuel were up 8.1%, comprising contributions from retail of 7.2% and wholesale of 0.9%. Group like-for-like including fuel was up 1.9%, with fuel sales down 23.1% on the back of new Covid lockdowns and tier restrictions.

The company said it now expected to incur a further £10m before year end to cover pandemic-related costs meaning total direct Covid-19 costs of £280m for 2020/21.

"In addition, the extra restrictions mean all our cafés are again closed, and areas such as fuel and food-to-go are once more affected, with a further profit impact before year end similar to the extra Covid-19 costs we are announcing today," Morrisons said in a trading update.

"However, we expect the sustained and significant operational gearing from the strong sales growth to offset these extra Covid-19 costs and profit impacts."

Morrisons said it still expected full-year profit before tax and exceptionals to be in line with its forecast range of £420m - £440m, prior to a business rates payment of £230m.

Hargreaves Lansdown analyst Sophie Lund-Yates said the group’s mention of improving customer and brand metrics was a "significant milestone" for the UK's fourth-biggest supermarket chain, in the "highly competitive realm of the Big Four" sector players including Sainsbury's, Tesco and Asda.

"Morrison’s is an underdog in some ways, especially when looking at the online business, which is smaller than some rivals. Starting from a lower base means there’s more room for exceptional growth, but the question now is if Morrison’s can keep a firm grasp on that momentum, and push growth long and hard enough to give its competitors something to worry about," Lund-Yates said.

"Sales growth is coming from the pile it high, sell it cheap mentality. Cutting prices isn’t a new tactic, and in some respects a volume-led approach is often desirable. But it’s a method that requires a high number of sales, or margins will suffer. As the vaccine roll-out continues and shopping habits potentially start to temper later this year, lower prices could put a lid on profit potential. With the recent sale of Asda and an all-round uber-competitive environment, it’s unlikely pricing pressure is going to ease.”