Just how bad was Morrisons' Christmas trading?

The market can be a cruel judge of competence.

No sooner had the news broken that Dalton Philips was axed as Morrisons CEO, the beleaguered supermarket’s share price jumped up by some 6%.

The trend so far this year is for the supermarkets to have experienced better Christmas trading than the market feared, so how bad was Morrisons’ festive trading that the man in charge was relieved of his responsibilities?

Although Morrisons underperformed its listed contemporaries, its Christmas looks like having been far from a disaster and there was even scattered evidence pointing to something of a recovery.

Morrisons’ like-for-like sales (excluding fuel) over the six weeks to 4 January were 3.1% down, compared to a 1.7% third quarter sales decline at Sainsbury’s and a 1.2% like-for-like Christmas decline at Tesco (though its third quarter sales were 5.1% down).

So Morrisons numbers were not great – certainly compared to improving trends at Tesco and Sainsbury’s – but better than the 3.8% decline predicted by analysts (though Morrisons’ like-for-likes included a bigger net contribution from online than its rivals, so that 1% online boost takes its in-store like-for-like sales down to -4.9%).

It is also not fair to attribute this entire decline simply to falling sales as volumes continued to show an improving trend over the period. Morrisons said “volume performance was stronger in the last four weeks” helping boost KPIs – items per basket improved from -2.4% year-on-year on Q3 to -0.2%, and number of transactions from -3.3% to -1.7%. Therefore, deflationary prices cuts (some admittedly self-inflicted) look to have had a significant dampening effect on value sales.

This morning’s Kantar Worldpanel seems to reveal an improving sales trend for Morrisons in recent weeks. Morrisons’ total sales for the four weeks to 5 January edged up by 0.2% - a marked improvement from the 1.6% twelve week decline Kantar recorded. In fact, Asda looks like the supermarket to endure the toughest Christmas period – with its four-week sales falling by 2.5% when the other big four constitutions were growing (Tesco at 2.1%).

A further noteworthy finding of the Kantar data is how much the other supermarkets appear to have been boosted by non-grocery sales over the period. Morrisons, which sells far less general merchandise than the other major supermarkets and so participated far less in the Black Friday extravaganza, saw total grocery sales improve by 0.7% in the four weeks to 5 January. Meanwhile Sainsbury’s saw a 1.3% drop in grocery sales during the same period and Tesco’s grocery sales were up 1.5%.

This means that Morrisons grocery sales were 50 basis points better than its total till roll over the same period, while Tesco’s grocery sales were 60bps worse and Sainsbury’s 170bps lower.

Bernstein analyst Bruno Monteyne commented today that “companies don’t normally “stick to guidance and beat consensus” and “replace CEO/Chairman” at the same time”. So why were these morsels of optimism not enough to buy Philips more time?

The key to Philips’ fall is that Morrisons has been underperforming relative to the sector for a long time. Morrisons’ Christmas 2014 figures are not horrific taken in isolation – but last year Morrisons’ sales were 5.2% down meaning the supermarket had very gentle comparatives.

Shore Capital’s Clive Black said: “The improving trend revealed for the Christmas 2014 trading period is much needed albeit appears to be as much about favourable multi-year comparatives rather than any notable advancement in underlying trading in our view.”

HSBC’s Dave McCarthy highlighted that Morrisons’ Christmas like-for-like sales are down by approximately 12% over the past three years. “Given the high operational gearing of this business, this will be putting huge stress on the P&L,” he said.

Ultimately, Morrisons’ Christmas results weren’t bad enough to get a CEO fired – instead the cumulative impact of Morrisons’ continued sales decline over a number of years eroded Philips’ position to the point of no return.

Morrisons may be very slowly turning the corner, but that gentle progress has been too little, too late for Philips.

Morrisons’ historic fundamentals