Morrisons plans to slash its margins for the year ahead as it launches a major fightback against the discounters.
The under-pressure retailer posted a loss before tax of £176m for the year to 2 February. Turnover fell 2% to £17.7bn with like-for-like sales down 2.8%.
The loss came about with the retailer writing down the value of its property, IT and its investment in Kiddicare, which it now plans to sell off after disappointing performance. The net result was a 13% fall in underlying pre-tax profits to £785m.
However Morrisons warned that next year’s profit would be less than £375m as it looks to invest in price and promotions and its own brand.
“We must address the key structural development in the market, discounter growth”
Dalton Philips
CEO Dalton Philips said Morrisons had experienced “a difficult year that was reflected in both the top and bottom line”.
He said Morrisons had held its own against its big four rivals but had lost share to the discounters.
“We must address the key structural development in the market, discounter growth. This is an issue which is affecting us and all the traditional grocery players,” said Philips.
“Consumers have started to shop at the discounters in the same way they would a traditional supermarket – their perception of them has changed. Price is not the only determinant of store choice, but it is the most important factor. Whilst Morrisons offers so much more by way of the provenance and range of its fresh food, in-store craft skills and great service, it is essential that in pricing terms, we are close to the market leader.”
Morrisons said it will put £300m towards this aim in 2014/15 as part of a wider £1bn investment over the next three years.
It will focus on its core stores and proceed with the launch of a Morrisons loyalty card, as well as accelerating online and convenience. In so doing it plans to sell off its 10% stake in US online grocer Fresh Direct as well as Kiddicare.
Philips admitted Kiddicare’s performance had been disappointing with the 10 stores it bought from Best Buy not meeting expectations.
Speaking about Morrisons’ online grocery operation, which launched in January, Philips said it had got off to a great start with “demand pushing even our most optimistic plans to the limit”.
He also revealed more details of the retailer’s much-discussed property review with plans to generate £1bn from property disposals over the next three years and a further £1bn from operating improvements over the same period.
Morrisons shares fell 10% in early trading.
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