We're the British underdog says Morrisons boss as sales rise but jobs go

SUPERMARKET chain Morrisons today drew a line under three years of decline by unveiling a surprise rise in sales over Christmas - while wielding the axe on seven under-performing stores and 680 jobs.

David Potts

CEO David Potts, the man behind the Bradford-based superstore’s recovery, said: “We are on a long journey to lead the revival of this great company.

“We are the small guy in the squeezed middle. We are the British underdog.”

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In his first Christmas in charge, Mr Potts said like-for-like sales rose 0.5 per cent in the six weeks to January 3, a far better performance than last year’s 3.1 per cent decline.

David Potts

The improvement came despite the impact of the recent floods on Morrisons’ Northern heartlands.

Mr Potts said trading was hit at its Keighley store which had to close, and its Kirkstall store where the car park was flooded.

“Overall it put a lot of stress on our people and our customers,” said Mr Potts.

Morrisons Christmas trading

“In places like York the whole city seemed to be under siege.

“It brought its challenges but we were able to provide our cafes and our facilities and we donated £100,000 to the five most affected communities.”

Sales contribution from net new space was negative as expected (1.4 per cent), following the recent disposal of 140 M local stores and previously announced supermarket closures.

At a time when many retailers are seeing their online sales massively outperform their high street takings, Morrisons insisted that its sales rise followed an improvement at its core store portfolio.

David Potts

Its online sales rose by a massive 100 per cent, but this was from a very low base as online was only launched two years ago and is gradually being rolled out across the country.

Online contributed 0.9 per cent to the nine-week like-for-like sales growth and the firm said there is very little cannibalisation between digital and stores.

Morrisons claims that it is stealing online shoppers from its three main rivals, Tesco, Sainsbury’s and Asda, rather than its own stores.

Morrisons said in a trading update: “We are working at pace to improve all aspects of the shopping trip and customer satisfaction levels remain significantly ahead of last year. We are beginning to attract customers back to Morrisons, with the LFL Number of Transactions up 1.3 per cent year-on-year in our core supermarkets. In addition, online sales grew nearly 100 per cent year-on-year.

Morrisons Christmas trading

“We continued to cut prices in the period, driving deflation excluding fuel of 3.2 per cent, and c.7p per cent on a two year basis. This year, we traded without the ‘Christmas Collector’ scheme and with a greater focus on everyday value, running less multi-save promotions and providing bigger packs with better value. In addition, we saw strong LFLs in premium products and a successful category reset in Beers, Wines and Spirits. All this meant better value and an improved shopping trip for customers, but it did impact Items per Basket.”

The statement added: “Our focus on simplifying and speeding up the business continues. Around 800 head office roles have been removed since the start of 2015/16. We are also bringing some teams, such as maintenance, in house to enable us to serve stores and customers better.

“We remain committed to optimising our assets and addressing areas of underperformance to improve returns, and we are today announcing that we are entering into consultation to close a further seven supermarkets. We have no further plans for a programme of store closures.

“Our financial position remains strong and strengthened further during the period, as we performed well in all areas of debt reduction. Our initial guidance for 2015/16 year-end net debt was £1.9bn-£2.1bn which we reduced to less than £1.9bn in November 2015. We are today further lowering our 2015/16 year-end net debt guidance, to £1.65bn-£1.8bn.

The new executive committee is now complete with the appointment today of Andy Atkinson as group marketing and customer director. Andy has been in the role on an interim basis and has previously held various senior commercial roles at Morrisons over the last four years.”

David Potts, the Chief Executive, said: “We are pleased with our improved trading performance over the Christmas period. While there is of course much more to do, we are making important progress in improving all aspects of the shopping trip, and our customers tell us they are pleased with the changes. In addition, we have made further progress in debt reduction, and our financial position is strong and getting stronger.

“I would like to thank our colleagues for their very hard work and dedication, both in serving customers so well over the busy Christmas period and then again in helping their communities, especially in the north of Britain where the flooding has been so severe.”

Commenting on outlook, Morrisons said: “We expect head office restructuring and store closure costs of £60m, at the upper end of the previously guided £50m-£60m range, after incorporating the costs relating to the proposed store closures announced today.

“We still expect underlying profit before tax to be higher in the second half of 2015/16 than the first half. We expect full year 2015/16 underlying profit before tax to be in the range of £295m-£310m before the £60m restructuring and store closure costs.

We continue to focus on our cash flow improvement programmes and now expect the benefits, specifically working capital and property proceeds, to be greater than we first anticipated. We will provide a further update at the time of the prelims in March.”

Morrisons has reported a sharp rise in customer satisfaction levels and said it is starting to win back customers from rivals.

Customer satisfaction is up by between six and 10 per cent on last year with 55 per cent of customers saying they are “very satisfied” with their shopping experience.

Chief executive David Potts hailed this as a sign that Morrisons is winning customers back from rivals.

“The key word here is ‘very’ - customers are very satisfied with Morrisons. Last year satisfaction rates were in the mid 40s,” he said.

Mr Potts said Morrisons will continue to lower prices over the coming year.

“One of our promises is to become more competitive. Customers want to trust a food retailer’s pricing. We want to have sharper prices,” he said.

Mr Potts said it was too early to reveal the location of the seven stores that are to be closed, putting 680 jobs at risk.

All seven stores are below 15,000 sq ft.

“This is the end of the programme of store closures. We are drawing a line under that phase of recovery,” he added.

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