Morrisons under pressure as fall in profits predicted

In a market dominated by special offers and price matching guarantees, half-year results from Morrisons on Thursday are expected to show that the UK’s fourth biggest grocery chain is feeling the squeeze.

The Bradford-based firm, which has 455 stores in the UK, has faced fierce competition from Tesco, which is looking to bounce back after its first profits warning in 20 years.

Leeds-based Asda has also been treading on Morrisons’ toes with the help of recently-acquired 
Netto stores.

German discounters Aldi and Lidl have also expanded into new locations, where they will have attracted some of Morrisons’ value- conscious customers. The challenging climate has been reflected in Morrisons’ shares, which have fallen 12 per cent this year, wiping some £900m from its market value. With pressure coming from all sides, the City expects profits for the six months to July 31 to fall two per cent to £434m.

When it last updated the market, the group posted a one per cent decline in same-store sales excluding fuel and VAT in the 13 weeks to April 29, the first fall since its difficult acquisition of Safeway in 2004.

The latest trade data from Kantar Worldpanel shows that Morrisons continued to lose out to rivals in the 12 weeks to August 5. Its overall sales rose 1.8 per cent, giving it a market share of 11.7 per cent, down from 11.9 per cent a year ago.

Shore Capital analyst Clive Black predicts half-year profits of £422m, which is an even bigger fall than most in the City expect.He predicts the group will have continued to suffer more sales declines, with like-for-like sales down two per cent in the second quarter and volumes off by as much as 3.5 per cent in the first-half. Mr Black said Morrisons was now fighting back by rolling out a vouchering scheme nationwide to win back lost sales.

Earlier this year, Morrisons’ chief executive Dalton Philips unveiled proposals to expand the group beyond its traditional supermarket heartlands. Morrisons’ has plans to roll out a further 20 convenience stores this year, following the success of pilot stores, including one in Ilkley.

Last week, Morrisons’ brand director Belinda Youngs told the Yorkshire Post that the company was making good progress on the transformation of its own-label business, in spite of criticism that it is neglecting core customers and failing to attract new shoppers.