Third quarter results from supermarket Morrisons (MRW) are getting short shrift from the market, the shares down 5.5% to 240.5p. But don’t let the market reaction fool you, this is still a decent showing.

What investors are probably focusing on is the like-for-like growth of just 1.3% in the Retail division. This was at the root of the underperformance of expectations,  with like-for-like growth coming in at 5.6% against a forecasted 6.1% and compared with growth of 6.3% over the summer – a period which was boosted by a heatwave and the World Cup.

The Wholesale arm performed well with like-for-like sales up 4.3%, which was broadly in line with what analysts had pencilled in.

AJ Bell investment director Russ Mould says: ‘After a party there is usually a hangover and that’s what supermarket Morrisons faces this morning as it reports slowing growth for the three months to 4 November, slightly short of analysts’ expectations.

NURSING A HANGOVER

‘This follows on from a great summer when the World Cup and UK heatwave helped the company achieve its best sales performance in nearly a decade.’

Mould points out this is still the 12 consecutive quarter of like-for-like sales growth for the business, for which chief executive David Potts can take some credit.

He adds: ‘Morrisons will be hoping that shoppers have been saving up for a Christmas splurge which could herald a strong end to the year for the business.

‘Elsewhere, some of Potts’ key strategic initiatives, like the expansion into the wholesale market and a boost to its online presence through a tie-up with Ocado, are progressing nicely.’

Analysts Clive Black and Darren Shirley at house broker Shore Capital put the bull case on the business. ‘To us, Morrison is a business well into “Fix” and digging deeper into “Rebuild” and “Grow” as part of a balanced self-improvement and expansion programme.

‘The business has done so on a capital light basis and we expect a continuation on this front, so supporting a step up in income distributions through forecast recurring ordinary and special dividends.’

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Issue Date: 06 Nov 2018