7th May 2015 12:46
LONDON (Alliance News) - Wm Morrison Supermarkets PLC saw its shares slide Thursday after it reported a steeper drop in like-for-like sales in the first quarter of its financial year than in the previous quarter, signalling the size of the task that its new chief executive has on his hands as he tries to turn the company around and attract back the customers that have headed elsewhere.
The UK's fourth-biggest supermarket group by market share said like-for-like sales excluding fuel were down 2.9% in the 13 weeks to May 3, worse than the 2.6% drop reported in the fourth quarter of its last financial year though a big improvement on the 7.1% decline it reported a year earlier.
Total sales for the first quarter excluding fuel were down 1.1% on the year, or 5.1% including fuel.
Still, it managed to cut its net debt pile by about GBP150 million in the quarter to GBP2.2 billion.
New Chief Executive David Potts, who has been at the helm for just seven weeks, reiterated that a full assessment of the business is underway and it will give a detailed update on this in September. In the meantime its focus is to "invest more for customers in order to build trading momentum.
"This is a business with many attributes, some unique. Our task is to use those advantages to improve the shopping trip for customers and create value," Potts said.
"The focus continues to be to invest more for customers in order to build trading momentum," the company added.
Morrisons, which cut 50,000 square feet of selling space in the first quarter of the financial year and started simplifying its head office, said it expects its underlying pretax profit will be higher in the second half of the year than the first. It expects to book restructuring costs of between GBP30 million and GBP40 million during the year as a whole.
The grocer, like peers, stockpiled land and property during the boom years in the UK grocery sector, but has now paired back its expansion plans and is having to writedown property values due to the downturn in the sector that's seen rivals including Tesco PLC and J Sainsbury PLC also pare back expansion plans, particularly for big stores. Morrisons, which had been looking to try and catch up with its rivals in the convenience store sector, has now significantly slowed its M Local rollout and is reviewing its proposition and site selection criteria.
Morrisons' steps to "simplify" the head office come after former Tesco executive Potts moved to change the management of the company. He joined Chairman Andrew Higginson, Tesco's former chief financial officer, and Chief Financial Officer Trevor Strain, former Tesco UK property finance chief, at Morrisons, and promptly made several changes to his top management team.
In April, Morrisons revealed plans to recruit 5,000 in-store staff while cutting up to 720 roles at its head office in order to "deliver better customer service", a move similar to rivals Tesco and Sainsbury's which also recently revealed job cuts and plans to restructure staff roles.
Cantor analysts were encouraged by the debt reduction, although Brewin Dolphin said it thinks any attempt to turn the business around will require significant investments and will face risks as it's implemented.
"The positive so far is that Morrisons has repositioned itself on price and absorbed its competitor?s strong promotional mechanics with the ability still to produce healthy free cash flow," said Cantor analyst Mike Dennis.
"This, we believe, is reflected in the first quarter GBP150 million improvement in net debt to GBP2.2 billion and, more importantly, provides capital head room to invest in new value formats and reposition the convenience store business," Dennis said, adding that the free cash flow should help to further reduce net debt to GBP2 billion.
Morrisons was the worst-performing stock in the FTSE 100 midday Thursday, trading down 1.8% at 176.5 pence.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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