Embattled grocer Morrisons (MRW) is marked down 8.4p (4.8%) to 167.5p on Thursday, as an interim sales and profits slump sends investors heading for the exit. Patience is wearing thin as new CEO David Potts (pictured below) says 'customers and colleagues are beginning to notice improvements' yet concedes 'the turnaround will take time and require sustained investment in the proposition'.
Click here to drill down into the finer details of the beleaguered supermarket's interims; you can pick through Potts' strategic priorities to rejuvenate the core business too. Key metrics under the microscope include a 35% underlying pre-tax profits drop to £117 million, not helped by plummeting petrol sales. There's also a disappointing 2.7% like-for-like sales (ex-fuel and VAT) decline, which reflects fulsome food price deflation amid industry-wide price-cutting.
Despite rising consumer confidence and real wage growth, Potts expects 'deflation to continue as we keep investing in our proposition' and flags further restructuring and one-off costs. Following on from yesterday's sale of the sub-scale M local convenience business to retail entrepreneur Mike Greene and Greybull Capital, Morrisons now says it will pull down the shutters on another eleven supermarkets.
Shore Capital is sticking with its £300 million full-year pre-tax profit estimate, for earnings of 9.6p and a 5p dividend. The broker notes 'trading is expected to be tough still in H2 with a challenging trading environment set to persist. Whilst comparatives remain favourable deflation and the time it takes for self-help to come through means that driving the top-line is likely to be sticky, noting the absence of the oxygen of new space. We forecast H2 2016 in store LFL sales to be down 1.5%'.
One observer distinctly lacking in optimism however is John Ibbotson of consultancy outfit Retail Vision. 'Although Potts is doing everything in his powers to turn it around, Morrisons' problems are almost certainly too deep-seated,' says Ibbotson. Selling convenience stores to a venture capitalist 'might give Potts some breathing space, but why sell the only growing part of the business and the bit with the most market potential? Swinging the axe on his executive board, culling 720 head office jobs, hiring 5,000 additional shop floor staff and reducing prices is clearly not enough to bring his cost base in line with the low cost discounters, Aldi and Lidl'.
'Having a high-cost internet operation run by Ocado (OCDO) doesn’t help either. Morrisons has consistently been behind the game. Late to online and with a high cost operation, late to convenience and then selling out, late expansion in the rich south and now under threat from the discounters in its northern heartland. Morrisons says in its latest results that the turnaround will take time, but how much time has it got? This is a retailer that is ripe for takeover.'