Morrisons (MRW) today announced its stronger sales performance for seven years, with like-for-likes up 2.9% in the nine weeks to 1 January. Here’s how leading City and retail analysts have reacted.
Ray Gaul, VP Research & Analytics at Kantar Retail, said Morrisons’ “remarkable” 2.9% like for like growth had been built “primarily through more frequent transactions and improved online and general merchandise ranges.” He added: “With Morrisons having met most of their investor targets for the 2016/2017 trading period and showing very positive momentum, Morrisons’ staff will have plenty to celebrate and will enter the upcoming year with plenty of enthusiasm.”
John Ibbotson of Retail Vision said Morrisons’ turnaround under CEO David Potts’ leadership had been “exceptional”. “Morrisons has returned to its roots and once again started to deliver fresh food, low prices and good value. There’s still work to do and a climate of intense competition, food inflation, lower margins and returns on capital, means the sales of yesteryear are unlikely, but Morrisons is safely into sustained recovery territory. The falling Pound may also hurt Morrisons less than its rivals, as a high proportion of its food is produced in the UK.”
Analysts at Jeffries said Morrisons had delivered “a strong end to 2016” but warned 2017 would prove tough for UK grocery. “The biggest ask on UK grocers will be inflecting food retail pricing from the c.-1% seen in 2016 to a level of around 5%. Further weakening in sterling, a build in oil prices and persisting agriculture commodity inflation indicate further risks to gross margin dynamics, especially as they coincide with a weakening outlook for UK disposable incomes.” However, Morrisons was the “ best-positioned UK grocer” in this climate, Jeffries added. “ On a leverage adjusted basis MRW trades at the most attractive FCY, and the group has just confirmed its ability to continue to drive LFL outperformance. A successful SBO implementation also provides a new element of self-help on costs.”
Phil Dorrell at Retail Remedy said Morrisons’ performance was remarkable and underpinned by a strong marketing effort. “Morrison’s Christmas marketing campaign was fresh and delivered a relevant food quality feel. ‘Morrison’s Makes It’ was well integrated across all channels and was a nice point of difference that Morrison’s will no doubt continue to exploit.” Despite this, availability had been poor, he added: “Fresh, BWS and core grocery suffered the worst real world availability of all the Big 4, consistently weak over time and across the country as witnessed by the Retail Remedy team. Availability is a significant problem but the fact that Morrisons have delivered significant growth without it offers an impressive opportunity for their new ordering system for 2017. The competition should be concerned.”
Analysts at Bernstein said Morrisons had “a great Christmas” that reflected “good execution by Morrisons as customers lost over the past few years come back to stores. We also expect it to reflect an overall strong Christmas by UK food retailers with this result boding well for Sainsbury’s and Tesco results later this week.” They also noted management did not comment on deflation for the first time in recent months. “In recent periods management have made comment on deflation (-1.0% at Q3), such a comment is absent from today’s release. This may indicate that prices are once again rising.”
Credit ratings agency Moody’s said Morrisons’ “ongoing revenue momentum” was “credit positive”. The agency added: “Importantly, the strong top-line performance is being achieved alongside ongoing cost savings. As such, the company are guiding for full year profits to be slightly ahead of previous market expectations. The company’s improving credit metrics, which are also positively impacted by working capital efficiencies and disposals of surplus property, leave Morrisons comfortably positioned in its Baa3 rating category at this time.”
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