morrisons

Results show that Morrison’s like-for-like sales including fuel increased 3.4% in the period, with total sales for the quarter, excluding fuel, up 2.3%.

The recovery at Morrisons (MRW) continued in the third quarter as like-for-like sales rose 2.5%.

The Yorkshire headquartered supermarket reported that, excluding fuel, 2.1% of the growth came from its retail operations and 0.4% from wholesale in the 13 weeks to 29 October.

Here’s how the analysts reacted:

Bernstein

Morrisons Q3 sales miss expectations with further investment in price competitiveness. MRW Q3 Group LFL sales growth of +2.5%; -30bps below consensus of +2.8% and -50bps below our expectation of +3.0%. This is a sequential step down from +3.4% in Q1 and +2.6% in Q2 and the second quarter in a row where they have fallen slightly short of market expectations. Retail (excluding wholesale) LfL sales growth of +2.1%, -30bps below consensus expectations of +2.4% and -60bps below our expectations of +2.7%.

Price position remains a focus. Morrisons has consistently stated that becoming more competitive is a key focus of their ‘Fix, Rebuild and Grow’ strategy, and report achieving a “step up” in competitiveness in Q3. With total LfL of +2.5% and positive volume growth versus (Kantar) inflation of +3.2%, this suggests that Morrisons is investing in price ahead of the market.

Morrisons reports positive LfL volume growth remains in Q3, noting that their definition of volume growth adjusts for consumers trading up to larger pack sizes. LfL transaction growth was +2.1%, a -110bps sequential decline from the prior quarter, but this was more than offset by an easing the trend for smaller baskets with items per basket down -3.6% versus -5.5% in Q2.

Wholesale contribution to LfL falls -10bps to +0.4%. This is the first step down after the contribution began in Q2 2016/17 and may imply that growth from the Amazon deal is not accelerating. We expect the contribution to increase once the McColls contract starts in 2018.

Total sales growth of +2.3% excluding fuel; -60bps below consensus of +2.9% and -80bps below of our expectation of +3.1%. This implies an impact on sales from space growth of -0.2%, -30bps worse than consensus expectation of +0.1%.

 

Jefferies International Limited

”An in-line update from MRW will do little to change the current debate on the shares. To us, self-help remains a powerful differentiator for the stock, relative to UK peers. One that helpfully adds to B/S and FC attractions to provide staying power at times of continued uncertainties on the UK consumer, and for that matter political, front.

”Q3 sales in line with a retail LFL of 2.1% broadly as expected by JEFe/cons of 2.1%/2.4% (Wholesale accretion takes total LFL for the quarter to 2.5%). This confirms retail LFL momentum in line with Q2 (also at 2.1%), despite hints of a reduced inflationary support in more recent weeks. And it confirms a strong 2yr LFL stack (which continues at >4%). As a result, we believe MRW continues to remain comfortable with current year consensus for PBT of £371m on a 53wk basis (consistent with JEFe £366m on 52wk). Similarly, we see no reason for changes to our y/e net debt forecast (of £916m).

”No major changes to sales enablers with today’s release not disclosing any new drivers to the consistent LFL delivery of recent quarters. Better availability, progress on store refreshes, further assortment improvements and enhanced value positioning all remain key. New product launches are singled out today with MRW highlighting an entirely new Home & Leisure landing in stores last week, as well as the doubling of the Best range for Christmas 2017 (vs a year ago). The extension of store pick .com to the whole of the North East suggests encouraging results in the trial store.

”UK landscape tough to read at this stage as our impression is that consumer behaviour is, in some respects, disconnected from inflationary challenges and growing household leverage. Indeed, while on the one hand discount offerings have accelerated share gains in 2017 (with Primark the major winner, for instance, in clothing), UK consumers’ propensity to cut back on discretionary spend has been less clear-cut than a decade ago. We, therefore, look to the recent slow-down in German discounters’ share gains with a modicum of suspicion. MRW’s superior defensive characteristics remain an incremental attraction given the extent of uncertainty in the outlook.”

Shore Capital

”Morrison has reported what we see as good solid trading for the 13-weeks to the 29th October 2017 with like-for-like sales (ex-VAT & fuel) up by 2.5% comprising positive overall LFL volumes. Following this market update we are retaining our FY2018 financial estimates ahead of the Q4 peak trading period. In a clearly competitive UK grocery market characterised by positive mix and modest inflation, albeit flatter volumes, we see Morrison now delivering sustained year-on-year growth-on-growth as a real achievement of CEO, David Potts CBE and his team. The business is generating positive leverage but also investing to sustain top line progress, to us relative competitiveness may have improved in the quarter, supporting ongoing trading margins and building free cash generation. The Group’s balance sheet is amongst the strongest in the sector providing the firmest possible basis for Morrison to deliver future robust EPS & DPS growth and, as we have previously outlined, scope for the Board to consider ongoing shareholder friendly initiatives in time too. ”

More to follow …