11th Sep 2014 08:53
LONDON (Alliance News) - Wm Morrison Supermarkets PLC Thursday posted a further drop in profit in the first half of its financial year, again hit by dwindling UK sales and waning market share, but the grocer raised its interim dividend and confirmed its commitment to paying a dividend of not less than 13.65 pence for the current financial year.
The UK's fourth largest supermarket chain raised its interim dividend by 4.9% to 4.03p per share from 3.84p, and confirmed its underlying pretax profit guidance for the full financial year of between GBP325 million and GBP375 million, after booking a combined total of around GBP135 million in new business development costs and other 'one-off' costs.
Some analysts believe that with increasing pricing competition in the UK grocery sector, and continuing pressure on margins, Morrisons dividend commitment is unsustainable, especially after its biggest rival Tesco PLC slashed its own dividend last week amidst a profit warning.
However, Chief Executive Dalton Philips was bullish on a call with journalists Thursday. "We are six months into the three-year plan that we set out in March and, although it is early days, I am encouraged by the progress we have made," he said.
Morrisons posted a pretax profit of GBP239 million for the 26 weeks to August 3, compared with GBP344 million a year earlier.
Morrisons has been slow in keeping up with its competitors, and the grocer said its profit was hit by its decision to invest heavily in deep price cuts, made in an attempt to counteract some of the pressure it's facing from heavy discounters Aldi and Lidl and upmarket grocers Waitrose and Marks and Spencer Group PLC.
Recent sales and market share figures from Kantar Worldpanel have shown mixed fortunes for the big four UK supermarket chains, but declines in earnings have hit Tesco and Morrisons the hardest.
Morrisons said revenue in the first half was down 4.9% at GBP8.50 billion from GBP8.94 billion last year, while like-for-like sales declined 7.8%, excluding fuel and VAT. Market consensus was for the supermarket to post a 6.9% decline in like-for-like sales.
It also was expected to report a first-half underlying pretax profit of GBP174 million. Morrisons beat that figure, reporting GBP181 million, down 51% from GBP371 million a year earlier. Underlying figures strip out property disposals, multi-channel and convenience development costs.
"As we anticipated, Morrisons first-half 2014/15 like-for-like performance has continued to lag behind our larger competitors. Our investment in price had a deflation impact, weighted towards second quarter. We also continue to face headwinds in the online and convenience channels, although our own businesses are progressing well," the company said in a statement.
Morrisons said that while its like-for-like sales performance is yet to improve, it is seeing some "encouraging initial trends", and it expects initiatives already made to start to benefit its sales performance towards the end of the second half.
It said it is already starting to see some real volume increase in both produce and meat due to the price cuts it has invested in so far.
Still, Morrisons said shoppers are not only cutting back on the number of items they buy through putting less in their shopping baskets, they are also trading down to cheaper alternatives
"The items [per shopping] basket is still a negative number, what we are trying to do is get more people shopping in our stores," Philips said.
"We still have much to do and our new strategy is fully focused on reversing our market under-performance," the company said.
Alongside deep price cuts, the supermarket has been pumping investment into starting its fledgling online business, and the rollout of its M Local convenience store formats - both areas other grocer rivals have been reporting strong growth in for some time.
"We're coming of a very small base, and those markets are growing very quickly, where our peers are well ahead," said Philips told journalists Thursday.
"On the operational side, we are cutting prices, changing store layout, reducing ranges, extending opening hours and simplified our in-store management structure...and because of this we are on track to launch our Morrisons card by Christmas," Philips added.
A decision to start offering a customer loyalty card marks a big turnaround for the company that for years has said it doubted the benefits of such a scheme.
"The fact that people are spending so much money in our stores, and we don't know who they are is not viable," said Philips, who declined to specify exactly what kind or loyalty or rewards card it would be.
"We are being tight lipped on the proposition, but we are confident we are feeling we have something really special, and whatever we do will back up our value credentials," he said.
Morrisons said it expects to incur GBP70 million in "one-off costs" relating to Kiddicare trading losses, restructuring, and the launch of the new Morrisons card in the current financial year.
The grocer also said it remains confident of generating GBP2 billion of cash and GBP1 billion of cost savings over three years.
Morrisons shares among the top three gainers in the FTSE 100 Thursday. They gave up some opening gains and are trading mid-morning at 178.90 pence, up 1.3%.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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