viewWM Morrison Supermarkets PLC

Morrisons expands online activities as trading proves highly volatile

Like-for-like sales were up 5.7% for the first quarter but have improved in recent weeks

WM Morrison Supermarkets PLC -
Customers follow social distancing outside a Morrisons store

Wm Morrison Supermarkets PLC (LON:MRW) said trading was “highly volatile” in the first quarter and it expects full-year costs relating to coronavirus are likely to be offset by the government's business rates holiday.

Like-for-like sales excluding fuel were up 5.7% in the grocer’s first quarter, which runs for 14 weeks from 3 February to 10 May.

Retail LFL sales were up 5.1% and wholesale revenue increased 0.6%.

LFL sales including fuel were down 3.9% compared to the first quarter last year, after the collapse in oil prices.

The volatility in trading has seen spikes from household stock-piling but also a significantly lower Easter in lockdown, when retail LFL sales were negative for the eighth through the 11th weeks of the financial year. 

Recent trading has seen a return to normal trading hours and improved product availability, enabling 9.6% growth in retail LFL sales for weeks 12-14. 

Negative fuel sales growth, however, is having an impact on working capital and net debt, “which we expect to reverse quickly when fuel sales normalise”.

Morrisons said that the volatile trading environment is proving costly, while its various positive initiatives in the coronavirus crisis such as a 6% staff bonus, community donations, colleague- and customer-protection initiatives all coming to a “considerable cost”, not to mention temporary staff absence rates that have sometimes spiked up to 20,000 workers.

Online grocery developments have been an important positive for the FTSE 100 group, with home delivery slots doubled thanks to increased use of store-picked groceries on the Ocado platform, a new click-and-collect service launched and a new partnership with Deliveroo proving popular with customers and extended to more deliveries and items, including a selection of beer and wine.

In the coming weeks, Morrisons said it is expanding its Amazon Prime store from 17 to 40 locations, covering most British cities and 90% of London postcodes.

On the outlook, chief executive David Potts said the board was continuing to monitor various 2020/21 sales, profit and cash flow scenarios, “but have minimal certainty or visibility around a precise outcome”.

He said the current best estimate is that costs from the pandemic will be “broadly offset by the in-year business rates cost saving, but the actual net effect is highly dependent on the length of the crisis and how customers respond as lockdown eases”. 

Morrisons shares rose almost 3% in the first hour of trading on Tuesday to 193.95p, though are still down 4% since the start of the year.

Independent retail analyst Nick Bubb said that Morrisons was the first big supermarket to highlight how poor Easter was, that the Q1 sales growth was “slightly better than expected” and also noted the strong uplift in trading in the past three weeks.

Sophie Lund-Yates, an analyst at Hargreaves Lansdown, said Morrison's had echoed the sentiments of other supermarkets that shopping habits are starting to look a little more normal.

“It also confirmed the inconvenient truth that extra sales come with extra costs, and as such a full year profit boom isn’t in the bag. Volatile trading patterns, plus hiring an extra 25,000 members of staff means earlier stockpiling behaviour isn’t automatically good news.

“The current crisis has provided an unexpected catalyst for the online business though. Morrison’s offering is smaller than some of its main rivals’, but the huge demand for delivery slots has forced the group to up its digital game. Starting from a lower base means Morrison is unlikely to have participated in the huge upswing in online demand on the same scale as its peers.

“But we see this as a potential catalyst for future growth. Coronavirus is likely to have triggered a longer-term shift to online shopping, so if Morrison can use the current situation to lay a bigger, stronger foundation for the online business then it could benefit.

“Morrison is an important part of the machine that keeps the UK fed. That means it will always have a certain amount of protection in times of uncertainty, but there is still work to be done if it wants to stay ahead in what is a very competitive marketplace. That will include continuing to harness the progress being made in the wholesale business. It would be a mistake to think that the pandemic has solved all the sector’s challenges.”

   --Adds share price and broker comment--

Quick facts: WM Morrison Supermarkets PLC

Price: 186 GBX

Market: LSE
Market Cap: £4.47 billion


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