Morrisons tops FTSE despite profit decline as supermarket remains confident of second half bounce

Supermarket Morrisons has seen its pre-tax profits drop from £440m to £344m in the half year to 4 August (release). The announcement also includes a 10 per cent decline in underlying profit to £401m.

We anticipate an improvement in our sales performance during the second half and accordingly the Board believes the Group's performance for the full year will be broadly in line with its previous expectations.

Despite the bad news, Morrisons is topping the FTSE 100 in early trading:

Mike van Dulken, head of research at Accendo Markets:

The positive share price reaction is despite headline H1 results number which markets would normally balk at, with sales flat (-1.6% on a comparable basis ex-fuel) while pre-tax profits dropped by a significant -23% (-10% underlying) suggesting significant margin erosion.

Investors preferring to focus on positives with the results not being significantly worse than expected. Income seekers getting a boost via a 10% hike in the interim dividend and pledge to pay out 2x underlying earnings from 2015. On the outlook, management maintains FY view, but comments that ‘yet to see sales impact from economic recovery’ suggesting being caution and upside potential should the macro picture things keep improving. Shares +20% since end-June lows helped by Ocado tie-up.

During the period Morrisons has opened seven new supermarkets, including a replacement. The company now operates 33 M local convenience stores and expects to have 100 operating this year.

Sir Ian Gibson, non-executive chairman, said:

Consumer confidence and market conditions have remained challenging in the first half ... Once again our interim dividend is increased by 10%, in line with our previous commitment.