Turnaround plan looks set to pay off for Morrisons

Alys Key
Follow Alys
General View Of Morrisons Supermarket
Morrisons share prices have climbed back up from a 139p low (Source: Getty)

The turnaround at Morrisons supermarkets headed by CEO David Potts looks set to gather speed this week as the company reports its best annual results in six years.

The chain is likely to report a 54 per cent rise in pre-tax earnings to £335m on Thursday, according to predictions by banking firm Jefferies. The firm also predicted like-for-like sales growth of 1.5 per cent and earnings per share up 12 per cent.

This stunning performance marks a contrast with two years ago, when the chain lost market share to bargain retailers Aldi and Lidl and the company's share price dropped from 326p to 139p after four years of declining sales.

Former Tesco executive David Potts was appointed in February 2015 and has led a turnaround plan which involved cutting head office staff and hiring thousands of new shop floor workers, as well as refurbishing a third of Morrisons stores so far. Costs across the chain have been cut by £1bn.

Since Potts's appointment the share price has risen by nearly a quarter, closing at 242.14p last Friday.

Potts has also taken strides into the digital age by forming an unlikely alliance with Amazon. Morrisons now has a wholesale deal with the online giant on Amazon Pantry, allowing online shoppers to buy Morrisons goods for delivery. Plans are also underway for the installation of Amazon lockers in 400 supermarkets, which Morrisons will hope to use to attract further purchases instore from online shoppers passing through.

The introduction of a Morrisons 'Best' range has also been credited with preventing the most discerning of the grocer's customers from upgrading to premium food-sellers like Waitrose.

The anticipated boost to full-year earnings follows the announcement that the supermarket's Christmas sales rose 2.9 per cent in the six weeks to 1 January, its best performance in the period for seven years.

But challenges in the year ahead will test the supermarket's newfound stability. The industry faces the issue of a potential rise in food cost prices, as foreshadowed by so-called 'Marmitegate' late last year. Most large-scale grocers are reluctant to pass the cost onto the consumer and so may see their profit margins tighten.

Related articles