Shares in supermarket group Morrisons (MRW) were among the few FTSE 100 gainers, on a day when inflation concerns hammered global stock markets, after the firm produced a solid first quarter trading update.
SALES BEAT FORECASTS
In the three months to 9 May the group reported like-for-like sales excluding fuel – the most commonly-watched metric for the sector – up 2.7% on last year and up 8.7% on the same period in 2019.
The increase was well ahead of house broker Shore Capital’s forecast of a 0.8% year-on-year increase and consensus estimates of a 1.6% increase thanks to stronger retail sales – driven by a 113% jump in online spending – and higher wholesale revenues as the firm supplied more McColl’s stores.
Including fuel sales, which were heavily impacted in the year-ago period, group like-for-likes were up 4.7% with fuel like-for-likes up 17.5% and volumes almost back to pre-pandemic levels last week.
The company maintained its target for full year 2021-22 profits before tax and exceptional items of at least £431 million, the figure it recorded last year before it repaid £230 million of business rate relief.
Looking further ahead, Morrison said it expected ‘meaningful profit growth’ in the 2022-23 financial year and would ‘refresh’ its long-term capital allocation plans with a suggestion that net debt might fall further than analysts are predicting.
Costs were in line with forecasts, with a further £27 million of charges for Covid, mostly due to worker absence and the need for more store marshals in the first few weeks of the quarter.
REASONS TO BE CHEERFUL
Chief executive David Potts described the quarter as ‘encouraging, with some good momentum’ across the group. ‘Our forecourts are getting busier, we are seeing encouraging recent signs of a strong rebound of food-to-go, take-away counters and salad bars, and our popular cafés will soon fully reopen.’
More in-store sales will help moderate the slowdown in online growth as overall sales ‘normalise’ a year on from the pandemic and should also help offset some of the pressures from rising commodity and transport costs.
Clive Black, retail guru at Shore Capital, sees earnings forecasts creeping higher, and cites positive trading through Amazon Prime, which the firm describes as ‘complementing our supermarkets well’, although it doesn't go into detail.
As well as lifting online sales, Amazon has opened three bricks and mortar stores in London under its Amazon Fresh banner, all stocked by Morrisons.
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