Morrisons Sales Fall 6%

Supermarket Morrisons has revealed that sales fell 6.3% in the three months to the end of October. Equity analysts say this will not affect their fair value estimate

Ken Perkins 6 November, 2014 | 4:49PM
Facebook Twitter LinkedIn

Competitive pressures continue to challenge no-moat WM Morrison (MRW), but the firm’s like-for-like sales declines moderated during the third quarter, and Morrisons’ shares, as well as those of other U.K. grocers Tesco and Sainsbury, jumped following these results in response to investors optimism that a bottom may have been reached.

We still expect Morrisons’ sales to decline over the near term, and we don’t expect to make a material change to our £2 fair value estimate. Shares remain undervalued, but we don’t think one quarter of smaller LFL sales declines is enough to have conviction on a turnaround. As such, we recommend that investors wait to purchase the shares at a greater margin of safety.

LFL sales declines (down 6.3% excluding fuel) show that Morrisons still faces an uphill battle to stop market share losses, as the shortfall was due to 3.3% lower traffic, 2.4% fewer items per basket, and lower prices. That said, results are improving, as third-quarter declines compare with previous LFL sales declines of 5.7%, 7.1%, and 7.6% in the fourth quarter (of last year), first quarter, and second quarter, respectively. The company is working actively to reduce the number of stock-keeping units it carries (down about 10%--to 22,150 SKUs--since the fourth quarter of last year) as well as the number of items on promotion (down about 13.6%).

We remain cautious on the U.K. grocery space, but we do see some reason to believe that competitive intensity has reached its peak. Most of the big four grocers - Tesco (TSCO), Sainsbury (SBRY), Asda, and Morrisons -have reduced their promotional activities and cut prices (at the expense of margins) to be more competitive with the discounters Aldi and Lidl.

Moreover, Morrisons is now price-matching the discounters and the other large grocers. If fewer (and more effective) promotions and price matching are well-articulated to consumers and Morrisons continues to build out its omni-channel capabilities, we think LFL sales trends should stabilise.

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Sainsbury (J) PLC247.73 GBX0.70Rating
Tesco PLC350.00 GBX0.40Rating

About Author

Ken Perkins  is a Morningstar equity analyst covering consumer packaged goods firms.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures