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Morrisons (MRW) has posted a 5.3% rise in first half pre-tax profits despite recording a second quarter sales fall of 1.9% - the supermarket’s first quarterly sales drop since 2016.
The Bradford-based grocer’s total revenues for the first half of its 2019/20 financial year were up 0.4% to £8.83bn.
New space contributed 0.1% to growth, while fuel sales were up 0.6% to £1.9bn.
Group like for like sales excluding fuel were up 0.2%, driven a by a 1.3% rise in like for like wholesale sales as retail sales slipped 1.1% in the first half.
Group like for like sales fell 1.9% in the second quarter, driven by a 2.4% slump in retail like for likes while wholesale grew 0.5%.
Morrisons said customer behaviour “continued to be impacted by the uncertainties around the prolonged Brexit process” while consumer confidence continued to be low.
It added that sales were also hampered by the “very favourable” summer weather last year that became “unfavourable” this year, particularly in May and June, and there were no similar events to match last year’s boosts from the World Cup and royal wedding.
Morrisons stated: “We continued to invest in improving the shopping trip and becoming more competitive, especially for customers’ favourite items. We increased this investment during the first half, significantly reducing prices across hundreds of the Morrisons price list items and, while this is having a deflationary impact relative to the market, we have been pleased so far with the volume uplift of those items.”
In wholesale the closure of 40 McColl’s stores in the first half impacted growth slightly.
Operating profit before exceptionals was up 2.4% to £252m, with margin up 6bp year on year to 2.9%.
Profit before tax and exceptionals was up 5.3% to £198m, while statutory profit before tax after exceptionals was up 48.5% to £202m largely due to the £52m of exceptional items in booked in its previous financial year.
Chairman Andrew Higginson commented: “I’m confident that Morrisons is on the right path for continued and sustainable growth. The team are listening and responding to customers, and making the right choices to benefit all stakeholders, including strong dividends for shareholders.”
The supermarket has announced an extension of its wholesale supply partnerships with Amazon and Rontec, and two new partnerships, with Harvest Energy in the UK, and LuLu in the Middle East.
During the second half, it expects retail LFL to improve, and for various additional cost saving opportunities. In addition, it remains on track for our medium-term target of £75m-£125m incremental profit from wholesale, services, interest and online.
Reflecting these growth opportunities, sustained profit and cash flow progress, and future expectations, Morrisons has announced a further special dividend of 2p per share today.
CEO David Potts added: “We stayed focussed on our Fix, Rebuild and Grow strategy, and were pleased to maintain the momentum of the turnaround against strong comparatives last year. Sales and profit progress was robust, and we again invested in improving our competitiveness for customers.
“News today of new wholesale initiatives, including a further extension of our partnership with Amazon, and of another special dividend, again show how new Morrisons continues to become broader and stronger for all stakeholders, and how progress can be meaningful and sustainable even in more testing trading conditions. Such progress is only made possible by Morrisons exceptional team of food makers and shopkeepers.”
Morrisons shares are up 3.1% to 200p on the news.
Morning update
The John Lewis Partnership has posted a £25.9m loss in the first six months of the year, despite improved profit performance from Waitrose as its John Lewis stores suffered.
The loss group before partnership bonus, tax, exceptional items and IFRS 16 of £25.9m compared to a profit of £0.8m last year.
An increase in operating losses of £42.5m to £68.1m at John Lewis & Partners was driven by subdued consumer confidence, which hampered home and electicals sales, additional IT costs and cost inflation well ahead of the level of sales growth.
Waitrose & Partners grew operating profits before exceptionals and IFRS 16 by £14.1m to £110.1m, with the increase largely due to property profits of £12.1m this year. Excluding this, profits were still ahead of last year with an improvement in gross margins and a strong operational performance offsetting the investment in non-management partner pay and higher marketing costs.
After including exceptional income of £243.9m, statutory profit before tax was £191.5m, up £185.5m on last year. Exceptional items this half year mainly include income of £249.0m following the approved changes to its pension offer, which removed the future link with final salary on defined benefit pensions.
Gross group sales were down 1.2% to £5.49bn, while group revenues fell 1.4% to £4.86bn.
Total net debts reduced by £469.2m compared to July 2018 due to “tight cash management” and its decision to close its final salary defined pension benefit scheme.
Sir Charlie Mayfield, chairman of the John Lewis Partnership, commented: “The re-drawing of the UK retail landscape continues apace. While trading conditions have continued to be difficult, we have accelerated our differentiation strategy and significantly strengthened our balance sheet.
“As we continue with our strategy to compete through differentiation, not scale, we have maintained investment in Partners and innovation, despite profit pressures, and have seen encouraging results in several areas… In Waitrose & Partners, despite a weak grocery market, we had a good trading performance with only a marginal decline in like-for-like sales, and continued improvement in gross margins, benefiting from 47 completed category reviews. We also saw strong online grocery sales growth of 10.7%, well ahead of the market.”
The group has historically made the majority of its profits in the second half of the year. Despite retail conditions remaining “challenging”, the group will look over the next 12 months to accelerate the transformation of the partnership to deliver innovation faster and increase emphasis on its competitive difference.
However it warned: “Should the UK leave the EU without a deal, we expect the effect to be significant and it will not be possible to mitigate that impact. In readiness, we have ensured our financial resilience and taken steps to increase our foreign currency hedging, to build stock where that is sensible, and to improve customs readiness. However, Brexit continues to weigh on consumer sentiment at a crucial time for the sector as we enter the peak trading period.”
Elsewhere, British American Tobacco (BATS) has announced it is to cut 2,300 jobs globally as part of a drive to “simplify its business and create a more efficient, agile and focused BAT”.
The company has this morning pledged to reduce management layers, create fewer larger more accountable business units, better leverage its Global Business Services activities and simplify all key business processes and “ways of working”.
It said: “This will ensure the company is better placed to meet ever evolving consumer needs and deliver savings that can be reinvested in the growth of its portfolio of new categories such as vapour, tobacco heating products and oral tobacco.”
The programme is planned to be substantially complete by January 2020 and envisages a reduction of around 2,300 roles globally. With the focus on simplification and removal of management layers, it is expected that over 20% of the senior roles in the organisation will be affected.
A consultation process is now underway with all staff who will be impacted.
CEO Jack Bowles commented: “Since taking on the role of chief executive five months ago, I have been clear that I wanted to make BAT a stronger, simpler and faster organisation and ensure a future fit culture. My goal is to oversee a step change in new category growth and significantly simplify our current ways of working and business processes, whilst delivering long-term sustainable returns for our shareholders. This is a vital first move to help achieve these goals.
“A programme of this significance involves decisions that will be difficult for our people, but ultimately it is the right thing for our business.”
On the markets this morning, the FTSE 100 is up a further 0.3% to 7,362.8pts.
Risers include Cranswick (CWK), up 2.3% to 2,980p, Bakkavor, up 2.1% to 119.4p and Hilton Food Group (HFG), up 2% to 1,008.
British American Tobacco is up 1.9% to 3,102p on this morning’s news.
Fallers include McColl’s (MCLS), down 6.2% to 44.1p, Stock Spirits (STCK), down 1.5% to 232.5p and SSP Group (SSPG), down 0.9% to 681p.
Yesterday in the City
The FTSE 100 jumped 1% up to 7,338pts yesterday as the weaker pound supported larger stocks and global sentiment improved over the China/US trade situation.
FTSE 100 names on the up included British American Tobacco (BATS), up 2.7% to 3,043p, Sainsbury’s (SBRY), up 2.5% to 213p, Ocado (OCDO), up 2.4% to 1,369p, Coca-Cola HBC (CCH), up 2.3% to 2,718p and Imperial Brands (IMB), up 1.9% to 2,213p.
Other risers included Britvic (BVIC), up 4.2% to 893p, Marston’s (MARS), jup 4.2% to 127p, Cranswick (CWK), up 3.7% to 2,914p and Naked Wines (WINE), up 3.2% to 261p.
The day’s few fallers included CARR’s Group (CARR), down 2.2% to 134.5p, PayPoint (PAY), down 1.4% to 907p and WH Smith (SMWH), down 0.9% to 2,002p.
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