Morrisons sales relatively flat, though earnings surge

Supermarket chain Wm Morrison released its interim numbers for the half year to 31 July on Thursday, with first half like-for-like sales excluding fuel and VAT up 1.4%.

The FTSE 100 firm said total turnover was almost flat, reducing 0.4% to £8.03bn, though underlying profit before tax rose 11% to £157m, or up 34% including the prior year’s restructuring costs.

Like-for-like sales growth in the second quarter of 2.0% was double the consensus estimates, while the interim PBT was around 5% ahead of the consensus forecast of £149m.

Underlying earnings per share were up 35% to 5.04p, and the company had free cash flow of £558m, up from £479m.

After profits were boosted by strong cost savings of £189m, Morrisons guided that savings would exceed the £1bn target by the 2017 financial year with "further", unquantified, opportunities beyond that.

During the period, Morrisons reduced its net debt by £477m to £1.27bn, below its year-end target.

The board declared an interim dividend of 1.58p, representing a 5.3% rise year-on-year.

“The new team has made a real difference and delivered further good progress across the board in the first half,” said Morrisons chairman Andrew Higginson.

“Prices are lower, customers are being served better and quality is improving, as demonstrated by Morrisons winning a number of recent prestigious awards such as the 2016 Meat and Fish Retailer of the Year.

“We remain on track to deliver improved profits and returns for shareholders,” he added.

Chief executive David Potts said the company is pleased with positive like-for-like sales and 11% underlying profit growth in the first half.

He said management's priorities were unchanged over the turnaround opportunity and we confident of succeeding.

Credit Suisse said the results were impressive and expected upgrades to the City analyst consensus, increasing its own PBT forecast by roughly 2%.

"However, sell-side analysts have become increasingly bearish on Morrisons recently with recommendations skewed ~70% 'sell', while the stock remains heavily shorted," CS analysts wrote, keeping their target price unchanged at 180p and 'neutral; rating.