A bad morning for Morrisons. The supermarket announced it will close 23 stores and cutting its future dividend pay-out after reporting a large full-year loss and falling quarterly sales. Shares in the retailer opened one per cent down this morning.
The trading environment is a tough one, Morrisons said, and it isn’t expected to get any easier this year.
Total turnover was down 4.9 per cent to £16.8bn for the 12 months to 1 February. It was £17.7bn for the previous financial year. The company made a loss before tax of £176m last year - this has skyrocketed to £792m this time around. All this adds up to a huge cut in the dividend: Morrisons said it would come in at 5p per share – a fall from this year’s figure of 13.7p per share.
Fourth quarter sales fell 2.6 per cent, less than the 2.9 per cent drop analysts polled by Bloomberg had expected.
Why it’s interesting
There’s a war going on. Aldi and Lidl invading the marketplace has thrown the discount cat right in the middle of the grocery pigeons. The traditional big hitters – Sainsbury's, Tesco, Asda, and Morrisons - are having to cut prices and streamline. A year ago Morrisons said it would invest £1bn in price cuts to keep competitive.
Tesco’s empire once stretched all the way to the US and China, and its growth seemed to know no bounds. Now the rise of the discounters mean it isn’t safe, even at home. Morrisons is facing similar problems, with food price deflation forcing it to streamline by cutting stores and jobs. 23 stores are going, it said today, and that is likely to mean the loss of 300 jobs.
Morrisons is waiting for its new chief executive Dave Potts to take over next week after predecessor Dalton Phillips quit. Potts, an ex-Tesco man, looks to have an uphill struggle in store.
Analysts were brutal. Phil Dorrell, ddirector of retail consultants, Retail Remedy, said:
This is a rout, not a reversal. With the most dated stores and weakest business strategy of the old guard grocers, Morrisons has truly been put to the sword by the rise of Aldi and Lidl.The brand has haemorrhaged both sales and share to the brash young discounters who took its cheap prices USP, improved it, and then unceremoniously yanked the rug from underneath it. Next to the perky German upstarts it has increasingly looked neither cheap nor cheerful.
What Morrisons said
Last year's trading environment was tough, and we don't expect any change this year. However, Morrisons is a strong, distinctive business - we own most of our supermarkets, have strong cash flow, and are famous with customers for great quality fresh food at low prices. This gives us a good platform.
David Potts joins as chief executive next week. Under his leadership, we will focus on building trading momentum and being more like the Morrisons our customers expect. We will invest more into the proposition and put customers at the heart of everything we do. We will listen and respond to our customers, and work hard every day to improve the shopping trip.
Success measures will be simple - more customers buying more from us. More customers means more volume growth which, ultimately, will lead to better like-for-like, profitability and shareholder returns.
Dalton Philips' attempt at price-cutting was just one of his strategies for improving sales: others included spraying fruit and vegetables with mist to make them look fresher. If that was the answer, it makes you wonder if anyone can understand the question. The price battle is going to be a long one, with no end in sight.