Morrisons' profits slump 31% but it's not all bad news

The supermarket's doom continues, with pre-tax profits down to £239m - and yet optimism abounds?

by Dave Waller
Last Updated: 06 Nov 2014

Morrisons has announced a 31% drop in pre-tax profits, to £239m, while its sales fell 4.9% to £8.5bn.

With high-end chains like Waitrose and M&S at one end, and discount stores like Aldi and Lidl at the other, it seems life's just getting tougher for Morrisons, which has been forced to slash prices on 1,200 products in recent months.

Non-executive chairman Sir Ian Gibson has described the whole industry as experiencing 'unprecedented change'. That'll be the change that's had the previously infallible Tesco announcing two profit warnings and shedding its chief exec this year.

Still, there's one key way in which Morrisons and Tesco differ in their response: while Tesco has naturally cut its dividend because of poor results, Morrisons has raised its interim dividend by 5%. Its shares even opened 4.3% higher to 183.90p on the London Stock Exchange.

Indeed, chief exec Dalton Philips has proclaimed 'a real sense that the business is getting back on the front foot', seeing this as another step on the road it began in March, when it announced a £1bn, three-year investment program to cut prices and launch 200 discount stores.

Not everyone is convinced, however. Back in June, Morrisons founder Sir Ken Morrison was already describing the company's results as 'disastrous', telling Philips that 'you have a lot more bullshit than me', and comparing the CEO's proclamations to the output of the 1,000 bullocks that Sir Ken keeps as a hobby.

And it's hard to be convinced that the ground is as fertile as Philips is suggesting. Yes shoppers picked up 30% more of the 'I'm Cheaper' range of goods on which Morrisons cut prices in May, and sales of fresh produce, meat and household basics did well.

But it may be hard to argue with critics claiming that this is simply a case of buying sales with voucher campaigns to make it look like things are picking up.

Philips, of course, had his defence against Sir Ken's points. He reckons that when he took over in 2010, some parts of the business were 20 years behind rivals, still using pen-and-paper methods to check stock, and some counting cash manually at the end of the day.

But it seems it won't be behind for long. Morrisons has now announced that before Christmas it's set to introduce... wait for it... a loyalty card. Never mind that this is the kind of data-gathering gizmo its rivals have been using for years.

It's also been slow getting a foot in the smaller, local grocery store market, which is one area that's proved successful for the likes of Tesco and Sainsbury. Morrisons was planning on opening 100 new ones this year but has now scaled that back to 60.

But one area where it does seem to be keeping pace with the pack is in online groceries, which shoppers are becoming increasingly au fait with. Ocado has been running since January, and Philips reckons the business will have turnover equivalent to £200m a year by the end of 2014 – and will be scaling it up with demand, adding 17,000 more products to its online range.

Of course if you're going to let anyone push your online shopping cart around, then Ocado is a good shout. While the majority of supermarkets are left fighting desperate price wars and ducking cow pats flung by enraged founders, Ocado has just reported a 22.5% rise in gross sales to £231.9m for the 12 weeks to 10 August 2014, with average orders per week up 17.4% to 163,000.

Its shares opened up 8.5% on the news. So Ocado CEO Tim Steiner gets the kind of pat on the back that Philips can only dream of.

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