Morrisons’ underlying profits before tax fell 51% to £181m in the six months to 3 August on the back of the retailer’s price-cutting strategy, while like-for-like sales fell 7.4%.
During the period Morrisons said it had reduced the number of SKUs by more than 2,000 and reduced the number of items on promotion by 13% as it looked to offer fewer but more impactful deals, under the strategic plans it announced in March.
“We are six months into the three-year plan that we set out in March and although it is early days, I am encouraged by the progress we have made,” said CEO Dalton Philips.
“Although it is too early to see the benefits of the plan in the sales line, Morrisons is getting back on the front foot, and implementing change and innovation at real pace throughout the business. We are meeting the challenges of structural change with decisive action and are on track to become a more distinctive value retailer for the next generation of grocery retail.”
Morrisons said it remained confident it would generate £2bn of cash and £1bn of cost savings over the three-year period and that its forecast for full-year underlying profits before tax was unchanged at between £325m-£375m.
It pointed to a slowdown in the fall of items per basket in the second quarter as a sign that the lower prices were gaining traction with shoppers. The number of like-for-like items per basket was down 3.2% in Q2, compared to 5.9% and 6.9% declines in the preceding quarters. In the fresh produce category, items per basket fell just 0.4% in the second quarter.
The retailer opened four new supermarkets in the first half and 17 M local convenience stores. However it said it would now only open 60-70 c-stores in the current financial year rather than 100 as a package of stores it had planned to buy did not meet its “strict hurdle-rate criteria”. However it renewed its commitment to open 100 M locals in 2015/16.
Vouchering was playing an increasingly significant role in the grocery market, Morrisons added. Across the sector the number of trips in the first half of the year in which a voucher was used was 21.3% compared to 18.1% in the first half a year ago.
Having permanently cut the price of 1,200 items by an average of 17% in May and a further 135 by 14% in June, Morrisons said it was determined to keep cutting prices in the future and that customer reaction to the cuts had been very positive.
In terms of ranging, Morrisons has reduced the number of SKUs it offers to 22,400, compared to 24,500 at the end of last year. It said its new own-brand sourcing team was stepping up the pace of product development, reducing complexity and removing duplication. It said it was looking to create a brand hierarchy that was better suited to customer expectations.
It has so far removed 8% of own-brand SKUs from its range and said that despite this, like-for-like volume growth of its mid-tier own brand is now ahead of the rest of the business.
Yesterday The Grocer revealed that executive chef Neil Nugent, who had been responsible for much of the retailer’s own-brand work over the last three years, had left the business by “mutual consent”.