What the analysts say: Morrisons stuns City with tumbling sales
Morrisons' strategy is under scrutiny
Morrisons' unscheduled Christmas trading update surprised the City this morning in more ways than one. Like-for-like sales fell almost 6%, under-performing its rivals by some distance. The decline was evidence the impact the growth of discounters Aldi and Lidl is having the UK's fourth-largest grocer.
Shore Capital analyst Clive Black
"The Christmas 2013 market was clearly weaker than anticipated by the Big Four players. Additionally, Morrisons does not have an online proposition, that starts to trade tomorrow, and is under-represented in convenience, which hinders relative performance. However, we are of the view that Morrisonss is under-performing because of fundamental issues with its brand, stores and offer and not these other matters, to think otherwise is dangerous to our minds. We believe the Fresh Formats approach did much to ostracise core customers of Morrisons but not attract new ones, from which the retailer has not recovered at a time when many customers have been tempted away to hard discounters and premium players in particular."
Panmure Gordon analysts Graham Jones and Damian McNeela
"Morrisons' trading problems appear to have mounted; in a quarter when it had been flagging it expected a return to like-for-like sales growth. Christmas trading saw LFLs excluding fuel decline by a whopping 5.6%, against our forecast of -2% for the quarter as a whole. After cutting our forecasts by 3% at the start of this week, we cut forecasts by a further 3% today. We maintain our 'sell' recommendation and cut our price target from 240p to 210p."
Bernstein Research analyst Bruno Monteyne
"The results were very disappointing, with like for likes down 5.6%, excluding fuel. This follows a very disappointing Christmas last year (LFL of -2.5%), which results in a two-year like-for-like of -8.4%. Morrisons have advised underlying profit will be towards the bottom of the consensus range (GBP783m to GBP853m). This is in line with our bottom of consensus forecast of GBP784m. We expect consensus to come down this week.
"Five years ago there was much to like about Morrisons; it had a heritage as a value and fresh food retailer, it had solid store execution and opportunities to grow through space, online and convenience. Since then it has lost its way: they have lost their value credentials and they initially ignored the profitable growing segments, online and convenience, which they are now moving into by via the expensive route of buying themselves into it rather than building know-how
Conlumino director Matt Piner
"Falls of this extent from major grocers are practically unheard of, and this update provides further proof that UK consumers were particularly stingy with their 2013 Xmas food shopping. Morrisons has pointed the finger at this competitive market, and in particular the prevalence of couponing, as one of the main reasons for its struggles - along with its lack of presence in online and convenience.
"However, it is wrong to look at growing its offer in these two routes to market as a magic bullet. Aldi has proved it is possible to succeed without, and Morrisons problems increasingly appear to run deeper. Consumers now appear unsure what Morrisons stands for, and what the relative advantages of shopping there are. In a highly competitive market, where the likes of Aldi, Waitrose and Sainsbury's are brutally clear about the benefits of shopping there, that is a dangerous position for Morrisons to be."
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