Morrisons to release solid results amid tough market conditions

Morrisons in Stowmarket.

Morrisons in Stowmarket. - Credit: Archant

Morrisons is expected to report rising sales and profits when it releases half-year figures this week, but increased competition is expected to have dragged on growth.

Shopping trolleys at a Morrisons store. Picture: DENISE BRADLEY

Shopping trolleys at a Morrisons store. Picture: DENISE BRADLEY - Credit: Copyright: Archant 2017

A consensus of City analysts forecast that like-for-like sales at the supermarket will rise 2.6% in the first six months of 2017, with HSBC tipping half-year pre-tax profits to increase 30% to £186 million.

However, second-quarter sales are expected to show a slowdown, with broker Jefferies pencilling in a 1.7% rise in second-quarter comparable sales, which compares to growth of 3.4% in the first three months of the year.

George Salmon, equity analyst at Hargreaves Lansdown, said: “Competition has been intense to say the least, and Asda’s sales have recovered in recent months after another round of price cuts.

“Investors will be hoping this doesn’t mean customers have been migrating away from Morrisons stores, which would take the shine off the group’s own recovery.”

Morrisons chief executive David Potts has led a recovery of the grocery chain by investing in price cuts and calling time on under-performing stores in attempts to turn the page on the supermarket’s ill-fated era under ousted boss Dalton Philips.

In his latest attempt to reinvigorate the supermarket, Morrisons said in August that it will relaunch the Safeway brand after striking a deal with McColl’s to supply the convenience store chain with groceries.

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The partnership will see the supermarket supply Safeway and branded products to 1,300 convenience shops and 350 newsagents starting from January next year.

The move will help Morrisons secure wholesale sales of £700 million including tobacco by the end of next year, with the amount rising to £1 billion.

Mr Potts’ efforts, which also includes a deal to sell groceries through Amazon, come as the Big Four - Tesco, Asda, Sainsbury’s and Morrisons - remain locked in a bitter price war sparked by German discounters Aldi and Lidl.

David McCarthy, head of consumer retail at HSBC, is even warning that Morrisons, the smallest of the Big Four, is at risk of falling behind Aldi “within two years”.

He added: “Morrisons could fall behind Aldi within two years and in some categories is likely to already lag Aldi.”