Morrisons (MRW), the UK’s fourth-largest grocery chain by market share, currently in the midst of a bid battle between two US private equity giants, has warned customers of ‘industry-wide retail price inflation’ in the second half’ after posting a 37% drop in profits for the six months to the start of August.
Sales in the half were up 3.7% including fuel to £9.05 billion, but on an ex-fuel, ex-VAT like-for-like basis - the metric most closely watched by the City - they were down 0.3% after a 3.7% fall in the second quarter.
Profits before tax and exceptional items fell 37.1% to £105 million against £167 million last year, impacted by £41 million of direct Covid-related costs and £80 million of lost earnings from its cafes, fuel and food-to-go sales.
Despite the disappointing results, shares were flat at 293p, underpinned by the recommended bid from CD&R at 285p.
SUPPLY CHAIN HEADACHES
In what is likely to be the Bradford-based firm’s last set of results as a quoted company, it said the whole British food industry faced continued challenges from Covid along with ‘sustained supply chain cost increases’ which were largely outside of its control.
It also cautioned that despite the intense competition in the grocery sector, prices were likely to rise in the run-up to Christmas ‘driven by sustained recent commodity price increases and freight inflation, and the current shortage of HGV drivers’.
For the current financial year the firm expects profit before taxes and exceptional items to be higher than last year’s £431 million as Covid costs fade and it recoups lost earnings from fuel sales, food-to-go and cafes. For the 2022/23 financial year, it forecasts ‘meaningful profit growth’ although that is of no benefit to shareholders given the bid situation.
GROWTH OPPORTUNITIES
While Morrisons will no longer be listed in a few weeks’ time, it is still a key player in the £200 billion-plus UK grocery market and its competitors will be watching its progress carefully.
The firm has already accelerated the planned conversion of McColl’s (MCL) stores into Morrisons Daily outlets, while its ‘Morrisons on Amazon’ service has expanded to more than 60 towns and cities, covering 60% of British households and accounting for more than 10% of sales at most of the stores where it is available.
This collaboration has been expanded with Morrisons now supplying Amazon Fresh stores in the UK.
At the same time the number of stores offering home grocery delivery via Deliveroo (ROO) has grown rapidly from 183 to 328 by the end of the first half and basket sizes are rising.
