Morrisons slides despite 'trading hard' over Christmas

As the first of the big four supermarkets to deliver its post-Yuletide update, the Bradford-based group revealed like-for-like group sales of 3.6% in the nine weeks to 6 January and stated that full-year expectations were unchanged.

This figure comprised retail LFL sales growth of 0.6%, with the wholesale business growing 3.0%. For the retail arm it was a tough comparison against the figures from a year before, when retail LFLs hit 2.1%.

City analysts had forecast retail sales growth of 0.5% for the Christmas period and wholesales growth of 3.6%, making for group LFL sales of 4.1%.

Morrisons said it had maintained a "strong offer" and emphasised "trading the business hard for customers" amid what it confirmed was "a change in consumer behaviour during the period".

Transaction numbers fell on a LFL basis but was roughly offset by an increase in the average number of items per shop, of 0.8%, as prices of a basket of key Christmas items were kept the same as last year. There was a strong jump in customer satisfaction scores such as 'colleague friendliness' and 'checkout experience' during the busiest weeks leading into Christmas and New Year.

"Our performance shows colleagues are listening hard and responding to customers, providing consistently great value and good quality when it matters most," said chief executive David Potts.

He added: "Morrisons is well set to keep improving the shopping trip and become more and more relevant for more customers."

MARKET REACTION AND ANALYSIS

Shares in the group fell more than 3% to below 212p in morning trade on Tuesday, not helped by fresh data from Kantar Worldpanel that showed the group was the second-weakest among its big four rivals.

"Morrisons continues good progress with like for like sales growth still at a healthy clip but it’s being punished for another relatively weak performance from the core Retail arm, although Wholesale continues to do very well," said Neil Wilson, chief market analyst at Markets.com.

He noted that retail LFL sales growth has slowed from 1.8% in Q1, 2.5% in Q2 and 1.3% in Q3.

"It’s worth stressing that we are in a goldilocks period for grocers with gently rising inflation and real terms wage growth at long last. But the hit from discounters is affecting the big supermarkets hard – the strong Aldi numbers highlight the kind of pressure the likes of Morrisons faces."

Analyst Bruno Monteyne at Bernstein said the retail growth figure should be "reassuring" as it's up compared to the prior year, against a high comparative growth the year before, slightly up versus consensus and "despite a very cautious UK consumer at the end of 2018".

However, he noted that the contribution from wholesale missed consensus by 60 basis points, almost all of which was due to the McColl business being transferred, after the deal signed early last year.

"Estimating exactly when and how fast that business is being transferred to Morrisons is not straightforward. For us the key point remains: Morrisons drives strong sales growth from its asset base through wholesale, without having to spend material capex. It's a great business to grow," Monteyne said.

Analysts at JPMorgan Cazenove, led by Borja Olcese, the mix of retail and wholesale "was ok".

"Overall, this performance confirms a sequential slowdown in the trend, dragged by tougher comps and lower food inflation, on top of a weaker market in November."