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Morrisons suffers miserable Christmas Morrisons suffers miserable Christmas
(about 2 hours later)
Sales at supermarket chain Morrisons slumped over Christmas, as the recession hit customer spending in its northern heartlands. Supermarket chain Morrisons was left behind over the Christmas period, as shoppers abandoned the weekly trek to its stores in favour of home delivery from its rivals.
The Bradford-based grocer said like-for-like sales dropped 2.5% in the six weeks to 30 December, which is likely to be the worst Christmas trading of the supermarket groups reporting this week. The group said: "The environment over the Christmas period has continued to be challenging with hard pressed consumers increasingly shopping to a budget." The Bradford-based grocer, which still has no home delivery service, said like-for-like sales dropped 2.5% in the six weeks to 30 December. It is likely to be the worst performance of the large supermarket groups and analysts said Morrisons only managed to avoid issuing a profits warning by heavily trailing the poor performance.
Even within these difficult market conditions, Morrisons said trading was "disappointing". Chief executive Dalton Philips admitted sales were lower than the company had anticipated, although they were in-line with analysts' most recent forecasts. Chief executive Dalton Philips said Morrisons had lost customers who are opting to buy online or in rivals' local stores because they are more convenient. He would not be drawn on whether the company would launch a groceries website this year, but said the company would make an announcement at the full-year results in March. "We are looking very closely at it; we like what we have seen so far."
The company avoided a profits warning – which some analysts had predicted – saying on Monday that it expects full-year performance to remain in-line with expectations and its financial position remains strong. Philips insisted Morrisons had not missed the boat. "This is a market where for 12 years people haven't made any money. We're not too late to the party. It's still only 5% of the market but it is growing very quickly. In some cases, there are last-mover advantages."
Morrisons is being left behind as the rock bottom prices offered by the discounters, such as Aldi and Lidl, steal its traditional no-frills formula. The chain, which does not yet have a grocery website, has also been hit by a growing number of people doing their weekly food shop online. The company said its promotions had also failed to resonate with customers. Morrisons is now hoping an advertising tie-up with entertainment duo Ant & Dec will revive its fortunes.
James Grzinic of house broker Jefferies said last week: "We expect hard discounters to have experienced a disproportionate improvement in market share over Christmas, particularly in the North of England. Secondly, more affluent consumers' migration to online shopping seems to have accelerated over the festive season." Shoppers, who have seen their budgets squeezed as pay has failed to keep up with inflation, continued to tighten their belts over the festive period. Philips said: "People did celebrate over Christmas but they were mindful of what was going in the basket."
Total sales at Morrisons over the period, excluding fuel, dropped by almost 1%. The company expects to have net debt at the end of the financial year of £2.1bn-£2.2bn. It is now hoping an advertising tie-up with entertainment duo Ant & Dec will revive its fortunes. As a result, Morrisons lost customers to discounting chains, such as Aldi and Lidl. Philips said: "You've got the emergence of this very savvy shopper, always looking around for the lowest-priced items, if that means discount stores, they will go there." He expects market conditions to remain difficult throughout 2013.
Even within this challenging market, Morrisons said trading was "disappointing". Philips admitted sales were lower than anticipated. The company did not, however, issue a profits warning – which some analysts had predicted – saying it expects full-year performance to remain in-line with expectations. Finance director Richard Pennycook said: "Christmas trading is not make or break for the whole year like they are for fashion retailers."
Philip Dorgan of Panmure Gordon said: "This trading statement is grim, but there is no direct profit warning, in part because consensus continues to fall." He expects analysts will lower their profit forecasts for 2014 and 2015, as sales decline and Morrisons is forced to invest in online and convenience stores.
Analysts forecast full-year underlying profits of £913m for the year to February. Morrisons said the company's financial position remains strong and it expects to have net debt of £2.1bn-£2.2bn at the end of the financial year.