Morrisons reports weak consumer confidence but expects sales to pick up

Morrisons' chief executive David Potts
Morrisons' chief executive David Potts
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Morrisons expects sales to pick up over the coming months despite the impact that Brexit could have on trading, after the firm reported its first quarterly sales fall since 2016.

The Bradford-based firm is looking at alternative ports to Dover in case the Kent port gets snarled up with lorry queues after a no-deal Brexit. Possible alternative ports include Felixstowe, Southampton and Portsmouth.

The Government’s plans in the event of a no-deal Brexit warn of severe disruption to cross-channel routes, affecting the supply of certain fresh foods.

However, Morrisons’ chief executive David Potts said the firm is well prepared for all Brexit scenarios.

“Two thirds of what we sell is British and we think that’s an important strength of the company. I think over time it can become bigger than that,” he said.
“There are a number of items, where if there are delays, we can either bring stock forward or we can look at alternative ports that we can take goods into around the UK rather than Dover.”

Asked what will happen if Brexit is delayed until January, Mr Potts said the firm is prepared for all eventualities.

He said that customers are worried about what will happen, but they trust Morrisons to keep prices low.

“Consumer confidence remains low, as it has been since last autumn, as the Brexit process continues to be prolonged and unresolved,” he said.
“Customers are concerned and they remain uncertain about Brexit and what it could mean for them. It is affecting the way they plan their daily lives and they trust and rely on Morrisons for great value.”

Morrisons ended its run of 14 consecutive quarters of growth with a 1.9 per cent fall in like-for-like sales in the three months to August 4 as unfavourable summer weather failed to live up to last year’s hot summer, when sales were also boosted by the World Cup and the royal wedding.

Like-for-like sales in the six months to August 4 rose 0.2 per cent following a 2.3 per cent increase in the first quarter.

The supermarket revealed it has extended its relationship with Amazon, signing a long term partnership to explore new opportunities. It will also roll out its ultra-fast, same day service with Amazon to five new cities this year - Sheffield, Liverpool, Newcastle, Portsmouth and Glasgow.
The firm reported a 5.3 per cent rise in first half pre-tax profit, before one-off items, of £198m.

Analyst Clive Black at Shore Capital said: “The second quarter has been challenging for Morrisons, as reflected in negative like-for-like sales in its retail division and a slowdown in the wholesale component.
“Whilst this is so, it was anticipated by us, so reflected in the shave to our 2020 pre-tax profit expectations in July.
“Morrisons will not be alone amongst British supermarkets in recording negative same store sales through the summer.”

Mr Potts said Morrisons’ data has not indicated that consumers are stockpiling ahead of Brexit.
“The overhang of Brexit is still there where consumers are quite careful and quite savvy just now and their confidence in the economy and their own finances has taken a bit of a battering,” he said.

Morrisons has stockpiled ambient goods and packaging materials and obtained Authorised Economic Operator status, which it hopes will speed up border checks in the event of hold-ups.
Morrisons will pay a special dividend of 2p a share, taking its total interim payout to 3.93p a share.

Analyst Thomas Brereton at GlobalData said: “Morrisons has navigated the haze of Brexit uncertainty and challenging year-on-year comparisons for grocers comfortably, not allowing the 1.1 per cent decline in retail contribution to like-for-like sales over the period to impact pre-tax profit growth and impressing stakeholders with a special interim dividend of 2p.”