Morrisons earnings preview: Grocery chain faces uphill battle amid Asda-Sainsbury’s merger

Grocery chain Morrisons is set to announce its first quarter trading results on Thursday, and the company may have a lot to prove.

Analysts at Barclays forecast sales growth of 1.7 per cent, below the company’s figures for the fourth quarter of 2017. If so, it would be the lowest sales growth since the end of 2016, although given the poor weather in March, the downturn is to be expected.

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However, Russ Mould, investment director at AJ Bell, points to the steep battle that lies ahead for the grocery chain, given stiff competition from major mergers and online retailers:

“Just when it looked like Morrisons was responding to boss David Potts’ turnaround plan, aided by a supply deal with McColl’s and a link-up with Amazon, the Bradford-based grocery giant faces fresh strategic challenges, in the form of the Tesco-Booker deal and the proposed Sainsbury’s-Asda merger – all of this on top of the day job of fighting off the discounters, Aldi and Lidl.”

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The company posted its eighth straight quarter of sales growth in March and met full-year expectations, however, the group’s operating margin slipped from 2.9 per cent down to 2.7 per cent.

According to Bell, it is this last margin that investors will be focused on, as well as the wholesale revenue to reach the target of £700m by the end of the year, further cost reductions and a further decrease in the group’s £973m net debt.

The grocery chain’s results come in the wake of a proposed merger between Sainsbury’s and Walmart-owned Asda, a deal which, if approved, would represent a dramatic shift in the retail sector and likely intensify the pressure on companies like Morrisons.