No Wedding, lousy weather... Morrisons hits harder times

When he announced its bumper results for the first quarter in 2011, Morrisons chief executive Dalton Philips warned that the retailer’s first-quarter sales in 2012 might not look so clever. “We got it spot on,” he said at the time.

Helped by the unseasonably hot weather for the Easter Bank Holiday and the Royal Wedding, combined with the fervour with which the public showed their support of Wills and Kate through their consumerism, Morrisons and most of its rivals enjoyed an oasis of growth in the middle of a very depressed economic environment.

However, this week’s 1% fall in like-for-like sales, in the 13 weeks to 29 April - the first for Morrisons since 2004, and coming on the back of last week’s market share figures from Kantar that showed Morrisons delivering just 0.8% growth for the 12 weeks to 15 April against market growth of 5.2% - has certainly got some experts questioning whether these results are a blip, or if the wheels are beginning to come off the Morrisons bandwagon.

Dave McCarthy, an analyst at Investec Securities, is swaying more towards the former position.

“The trading is a little disappointing, there is some loss of momentum,” he says. “But ultimately the Morrisons management are in control of this. They have stepped back from the aggressive price promotion stuff and are focused on profitable growth.”

McCarthy believes Morrisons is geared up to deliver greater profits this year on the back of flat sales growth, and even if some analysts have downgraded their sales forecasts after this week’s numbers, the consensus is that predictions on its profits largely remain unchanged.

McCarthy argues that if Morrisons really wanted to drive sales through, it could do so by extending the fuel deal it ran in February that offered 15p a litre off fuel for shoppers spending £60 in-store, or by running more voucher promotions like many rivals. “But what’s the point if it’s not profitable?” he suggests. “This is a choice it is making and instead of focusing short-term, it is positioning itself for the future.”

This is a key point that Philips was keen to drive home this week. “There are times to be in there and times to withdraw,” he said. “Many of these promotional voucher schemes have very small or even negative margins and we are prepared to sit back from them.”

This defence may not be enough to stop Morrisons copping a fair amount of flak from some sections of the press, and the decline in its share price since Christmas - every bit as precipitous as Tesco’s - suggests the City isn’t enamoured by the innovation and energy emanating from Bradford.

But there’s an argument for suggesting some of the problem for Morrisons is in going first. Its rivals have yet to reveal how they have done in the first quarter. And when they do, it will only be sales rather than profits, making it impossible to tell whose strategy is paying off.

While keen not to slate any rivals directly, it was clear both Philips and right-hand man Richard Pennycook predict the spectre of the Royal Wedding will loom large as other retailers report over the next few weeks.

In the meantime, Morrisons - and in all likelihood many of its competitors - will be keeping everything crossed that the Jubilee, Olympics - and a scorching summer - can redress some of the balance.