Profits surge at Morrisons as wholesale arm begins to deliverHeat Profit
MORRISONS has beaten Market expectations with an 11 per cent rise in underlying pre-tax profits to £374 million on strong sales and announced it is “open for business” as a wholesaler.
Revenue at the UK’s fourth largest superMarket was up 5.3 per cent to £17.3 billion in what was a 53-week year for the group.
The key like-for-like sales metric showed a 2.8% uplift, ahead of the recent performance of rivals Tesco and Sainsbury.
Under chief executive David Potts, Morrisons has turned itself around and held its own against the advance of Aldi and Lidl in spite of food inflation making competitive pricing a challenge.
Its growth has been fuelled by a focus on local products; Morrisons is working with 200 growers, farmers, fishermen and other food makers. It has also acquired separate potato and egg producing businesses, taking more control of its supply chain to keep costs down.
Neil Wilson, senior analyst at ETX Capital said Mr Potts and his team deserved credit for the group’s “fix, build and regrow” strategy, which is now in its fourth year.
“There is a lot of good news in here,” he said. “The strong and continued uplift in [like-for-like] sales points to management getting the basics right at a time when the threat from discounters is rising and consumers have endured a long battle with falling real wages that will continue to weigh for some months at best.”
Morrisons said the impact of lower sterling on imported food prices was a headwind for the industry but, helped by being a British business with a largely British supply chain, it took this as “an opportunity to become more competitive for customers”.
Its Fresh Look modernisation programme is continuing, after 80 stores were upgraded in the last year.
Morrisons also reported that it was on track to deliver annualised wholesale supply sales of £700m by the end of the year, rising to £1bn from 2019 onwards. The group said this area of the business remained on track for its £75m to £125m annual profit target.
“We are now open for business as a new wholesaler,” said Mr Potts. “We are making our brand more popular and accessible while allocating very little extra capital.”
In January Morrisons started supply McColl’s convenience stores with its own range, and 400 products under the resurrected Safeway brand.
Morrisons entry to the Scottish Market came in 2004 with the £3bn acquisition of Safeway. By the end of 2005, all Safeway stores had been rebranded as Morrisons.
In August last year, the superMarket announced it had signed a supply agreement with McColl’s, which would include an exclusive range of Safeway-branded products.
The group has also embarked on a number of other wholesale deals, including supplying 40 stores in the Channel Islands and 40 Rontec forecourts through its Morrisons Daily brand.
Morrisons also distributes goods on behalf of Amazon Prime in some areas, and plans to expand this over the course of the year.
Laith Khalaf, senior analyst, Hargreaves Lansdown, said: “The retail sector is polarising into winners and losers, as a result of tough trading conditions and changing consumer behaviour. Morrisons is carving out a place in the winner’s camp.”
The performance led to a special dividend of 4p being returned to shareholders.