Private equity owned Morrisons has warned its profits will come under pressure from mounting inflation and the situation in Ukraine.

The supermarket, taken private last year by Clayton, Dubilier & Rice, said that its own performance and the wider grocery market would be adversely impacted by current global economic conditions.

It stated: “We believe that the developments in the geopolitical environment since the beginning of February 2022 as well as ongoing and increasing inflationary pressure is impacting consumer sentiment and spending, which we expect to adversely impact the wider grocery market as well as our performance while these conditions.”

Morrisons said these developments have had an impact on sales and EBITDA since the beginning of February 2022.

Although it is taking steps to mitigate the impact of these developments, it said it expects profits to suffer this year.

“Unless these conditions improve, the impact of these developments could have a material adverse effect on our sales and EBITDA for the year.”

In a brief update, Morrisons said total sales were up 1.2% in the 13 weeks to 10 January at £4.56bn, boosted by a 46% jump in fuel sales to £841m.

Sales of goods in-store and online were down 6.3% in the period to £3.5bn.

Pre-tax profits were up from £52m to £127m in the 13 week period, but adjusted EBITDA fell from £350m to £316m.

Overall it reported adjusted EBITDA for the year to 10 January of £941m at an margin of 5.2%, down from adjusted EBITDA of just over £1bn in the prior year.

Shore Capital analyst Clive Black said the release “dampened the overall mood music” for the sector.

“We see Morrisons highlighting toughening times for the UK consumer, which chimes a chord with our more cautious narrative of recent weeks. Goldilocks inflation has disappeared, something less manageable for the majority of households is now in place.”

“However, we have not seen such a bite from February at an industry level, as Morrisons suggests, [and] we expect it to happen more noticeably from April.”

Morning update

Grocery sales fell back 4.1% in the four weeks to 26 March, according to Nielsen IQ, the sector’s lowest sales growth so far in 2022 as it laps strong comparatives.

Nielsen noted the sales drop comes against the high lockdown comparatives, indicating a potential return to growth post Easter and into the spring.

Online sales fell 19% compared with the same period last year, while sales at brick-and-mortar stores fell by 0.6%, albeit this is in line with expectations given the lockdown comparatives last year, where online sales surged 92%.

NielsenIQ data shows that store visits rose 5% over the last four weeks, and the overall online share of sales has stabilised at 12.4% having been 14.8% this time last year.

Similarly, spend per visit across all channels is unchanged at £18.52 in March (£18.50 in February), while promotional spend on offers also remains unchanged at 20% of sales purchased.

Nielsen found UK shoppers have been shifting spend towards supermarket private label products. The share of sales for FMCG private label products has risen from 52.4% to 53.2% compared to a year ago with sales of branded FMCG products declining -5.1% whilst overall sales of private label products are down just -1.9%.

Moreover, sales of private label products in the ambient (shelf-stable food) grocery category increased by 3.3% in the last four weeks; a significant change in a category where brands dominate with 61% share of total sales.

In the last 12 weeks, Marks & Spencer (+9.4%) experienced the fastest growth, followed by discounters Lidl (+8.6%) and Aldi (+5.6%) as these were the only retailers to gain market share.

Tesco was the best performer of the big four, with sales down 3.5%, followed by Sainsbury’s at -5.8%, Asda and -8.7% and Morrisons at -9.9%.

Mike Watkins, NielsenIQ UK head of retailer and business insight said: “As we leave behind the pandemic, it`s clear that shoppers are re-evaluating what they spend. Whilst some of the changes in grocery spend will be due to consumers simply having a different basket mix compared with last year, our data also shows that consumers are now increasingly shopping for private label products as part of their coping strategy”.

“We are therefore beginning to see three trends emerge. The first will be more spending on private label products as this still gives shoppers choice, from economy products through to premium. We’ll also see an increase in ‘trading down’ of products as shoppers seek to make more savings.

“Finally, we’d anticipate an overall shift of spend to retailers that are perceived to offer value for money. This will not only be discounters like Aldi or Lidl or other value retailers such as Poundland, Home Bargains and B&M but any supermarket with a strong price message, for example retailers offering differential price discounts for users of loyalty apps, reward threshold vouchers or fuel vouchers”.

“Whilst saving money on discretionary areas such as clothing and eating out are some of the immediate ways that households will economise, this does suggest there could be some impact on grocery shopping as the cost-of-living squeeze accelerates during Q2.”

On the markets this morning, the FTSE 100 has opened flat at 7,556pts.

Fallers include THG, down 1.6% to 95.3p, Tesco, down 1.3% to 272.3p and Greggs, down 1.1% to 2,430p.

Risers include McBride, up 4.7% to 42.2p, Hotel Chocolat, up 3.4% to 437.3p and Bakkavor, up 2.6% to 109.8p.

Yesterday in the City

The FTSE 100 started the week up 0.3% to 7,558.9pts.

Risers included tech and delivery stocks such as Just Eat, up 6.9% to 2,960p, Naked Wines, up 6.2% to 384p, Deliveroo, up 5.9% to 121.7p, THG, up 5.4% to 96.8p and Ocado, up 2.7% to 1,212p.

Also rising were Finsbury Food Group, up 4.5% to 69.5p and B&M European Value Retail, up 2.6% to 548p.

Fallers included Hotel Chocolat, down 10.4% to 423p, McBride, down 4.7% to 40.3p, Science in Sport, down 3.2% to 54.2p, Parsley Box, down 2.4% to 20.5p, Pets at Home, down 2.1% to 355.6p and Bakkavor, down 1.8% to 107p.