ii view: Sales fall at Morrisons

by Keith Bowman from interactive investor |

But management flags robust profits. Should investors visit given an estimated sector-leading yield?

Trading update for 22 weeks to 5 January 2020

  • Group like-for-like (LFL) sales including fuel fell by 2.8%
  • Retail contribution to LFL sales down 1.7%
  • Wholesale sales unchanged
  • Third-quarter LFL sales excluding fuel fell by 1.2%, improved from a fall of 1.9% in Q2
  • Full-year profit guidance - unchanged

Chief executive David Potts said:

"It was encouraging that during an unusually challenging period for sales, our execution was strong and our profitability robust, demonstrating the broad-based progress we have made during the turnaround. This was again down to the hard work of Morrisons exceptional team of food makers and shopkeepers. As always, we will take some learnings into the new year, and look forward to 2020 with a strong plan and solid foundations on which to continue to grow."

ii round-up:

Operating around 500 outlets across the UK, Morrisons (LSE:MRW) is the country’s fourth-largest food retailer with a market share of nearly 11%. 

It purchased rival Safeway back in 2004. 

The retailer’s online business is currently conducted through arrangements with both Ocado (LSE:OCDO) and Amazon (NASDAQ:AMZN)

It also supplies over 1,000 McColl’s convenience stores with its Safeway branded products, along with petrol retailers Harvest Energy and Rontec. 

For a round-up of this latest trading update, please click here

ii view:

Competition in the UK’s food retailing market remains intense. Discount retailer Aldi saw its Christmas sales top £1 billion for the very first time, while higher end competitor Marks & Spencer (LSE:MKS) is now executing its cyber offering via Morrison's own partner Ocado.

For Morrison itself, six initiatives including being more competitive and refitting stores are being pursued. Its online offering is now being coached increasingly by Amazon, while management is also extending wholesale partnerships where possible, including a previously announced deal taking it overseas. 

For investors, a sector leading analyst estimated dividend yield of over 6%, including a special dividend (not guaranteed), offers clear attraction, although the fight back from market leader Tesco (LSE:TSCO) should not be forgotten. 

Positives: 

  • Now partnering with both Amazon and Ocado
  • Net debt expected to remain at a low level by managment
  • Focus on returns - since 2014/15 dividends total 59.86p per share, equivalent to £1.4 billion

Negatives:

  • Both Aldi and Lidl have been gaining market share, aided by new store openings
  • The war online is growing – M&S are also partnering up with Ocado
  • Rivals such as Tesco are executing their own growth initiatives

The average rating of stock market analysts:

Hold

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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