Blackfriar: Morrisons' top management team will bounce back

The supermarket chain is set to end its three-and-a-half-year run of continuous growth as supermarkets struggle with tough competition and squeezed profits on the high street.

Analysts are predicting a 2 per cent fall in like-for-like sales in the second quarter of the financial year.

For the last 14 consecutive quarters, sales have risen.

Investors in Morrisons have had a tough year, with shares hitting a three-year low, dropping 28 per cent since February.

There is even talk of overseas investors eyeing up a takeover bid for Morrisons as a result of the weak pound, driven by ongoing uncertainty around Brexit.

Respected industry magazine Retail Week said Morrisons is considered a prime candidate for a potential takeover bid from an overseas private equity firm, as its share price continues to waver and the weakness of the pound makes deals cheaper.

Analyst Clive Black at Shore Capital said he is not suggesting Morrisons has already received an approach, “but sure as eggs are eggs, there are a vast array of investors looking at stable UK businesses at the moment”.

Retail analysts at Berenberg pointed out that Morrisons’ share price tumble could be due to the Asda/ Sainsbury’s merger collapsing, as Morrisons had hoped to benefit from store disposals by the rivals.

However, they are positive about Morrisons as an investment, pointing to the growth in Morrisons’ wholesale business (selling food and drink direct to Amazon and McColls) and its hefty 7 per cent dividend yield.

Russ Mould, investment director at AJ Bell, was less optimistic.

He pointed out that the supermarket has been losing customers to discounters Aldi and Lidl.

He said weak consumer confidence may be one reason for the slide and concerns over Brexit and what it might mean in terms of tariffs, costs and supply chains could be another, but the real crux of the issue could be competition.

Sales at all the big four supermarket chains have fallen recently, hit by poor weather and tough comparisons with last year.

The latest figures from Kantar show that Morrisons was the worst hit, with sales down 2.7 per cent in the 12 weeks to August 11 as shoppers put fewer items in their baskets.

Fraser McKevitt, head of retail and consumer insight at Kantar, said Morrisons’ fundamental problem is average basket sizes are getting smaller as people pick up fewer items.

He also claimed that Morrisons is increasing the level of promotion, but it’s not producing a positive sales response.

Analysts pointed out that Morrisons’ sales this summer were up against very tough comparatives.

Over the three month period last year, Morrisons was the best performer of the big four.

A spokesman for Morrisons said it is important to note that these figures compare with a period last year where the group saw particularly strong sales - its best for nine years.

Morrisons’ chief executive David Potts will be asked about the supermarket’s preparations for Brexit tomorrow. It is in the unique position of being both a retailer and a food producer.

Morrisons may see underlying sales fall, but the firm is in good health. All retailers are suffering from the Brexit crisis, but Morrisons is a well-run operation with a top management team.

It had a stellar year last year, making comparisons tough.

Morrisons will bounce back.