More reasons to invest in Morrisons

Morrisons continues to impress, with another big jump in profits and soaring sales growth...

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Last Updated: 06 Nov 2012

It’s been another good six months for Morrisons: the UK’s fourth-largest supermarket continues to make up ground on its larger rivals after recording bumper sales growth of 7.8% in the six months to August. Better still, as far as investors are concerned, its pre-tax profits were up 45% to £449m, allowing much-admired chief exec Marc Bolland to hike the dividend by a third. That’s pretty impressive going during the worst recession in decades – particularly since revenues were ‘only’ up 5% (to £7.5bn) during the same period. So what exactly is Morrisons doing right?

It’s partly that all the supermarkets are doing well, of course – we might be cutting back on our discretionary spending, but we still have to eat. So despite its bumper sales growth, Morrisons’ market share has only inched up from 11.2% to 11.6% this year. Nonetheless, today’s figures show that Morrisons is growing even faster than its rivals: that massive profit jump may have been artificially boosted by property and pension gains (it recently took the axe to its final salary scheme), but even if you strip these out, underlying profits were up 22%. So it’s clearly been boosting the bottom line via cost-cutting (or optimisation, as it prefers to call it) as well as top-line growth.

Morrisons itself reckons that its fresh food offering has been the main reason for its success: its Market Street format, which allows punters to buy fresh bread, fruit, meat, fish, and so on, has become ‘hugely popular with a growing number of customers’, according to Bolland. And since his store now serves 10m customers a week – 1m of whom are brand new in the last two years – it’s clearly doing something right.

We also wonder whether Morrisons is (belatedly) cashing in on the Safeway takeover back in 2004; it looked an expensive disaster in the subsequent months, but it allowed Morrisons to get its hands on some prime real estate in the south of England, where it previously had a limited presence. Now Bolland has got the offering right, it’s reaping the rewards. Indeed, we shouldn’t underestimate the importance of the man at the helm: Bolland’s turnaround job has been so successful that he’s bound to be on top of head-hunters’ lists when the next big retail job comes up.

But Bolland insists there is still plenty of scope for improvement at his current employer: he reckons that more than a third of the country still doesn’t have access to a Morrisons store, and he’s determined to change that via his ‘National to Nationwide’ plan. It opened 22 new stores in the last six months (apparently creating 5,000 jobs in the process) and there are plenty more in the pipeline. Sainsbury (which itself has had a pretty storming recession) might be forgiven for looking nervously over its shoulder…


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