City reacts to Morrisons Q1 sales update

City reacts to Morrisons Q1 sales update

Morrisons has seen sales continue to decline at a faster rate than its rivals in the first quarter of the year. However, the company has a number of initiatives in the pipeline - significantly its plans to launch online and expand in convenience - that are frequently cited as offering a longer term upside. Here is how the City responded to Morrisons revenue performance.

Shore Capital analysts Clive Black and Darren Shirley

"The new channels that Morrisons is exploring: here we see much noise but little participation to group sales at this juncture. Building a capability in non-food, online and convenience is proving to be a cash expensive and time consuming exercise if one considers the acquisitions of Kiddicare, the stake in Fresh Direct and a plethora of high street stores (80 were acquired in the period). On new channels, Morrisons is to some degree between a rock and a hard place. We have sympathy for Dalton Philips in this respect as he inherited a blank sheet of paper. We commend him for commencing the process of adjacent diversification to the core activities of Morrison. Whilst this is so it will take some years for non-food, convenience and online to materially feature in the group's top line, as seen at its major peers, and each channel is also likely to be earnings dilutive in the near term; hence the importance of not ignoring the development costs to the group's continuing bottom line."

Conlumino lead analyst Joseph Robinson

"This period saw Morrisons make further progress across a number of areas which are key to its long term health. It remains on track to operating 100 M Local by year end having acquired a tranche of outlets from failed retailers such as Blockbuster and Jessops. Morrisonsalso plans to have implemented its new Fresh food concept across 40% of its portfolio by the end of its financial year; further strengthening its credentials for quality and freshness.

However, while it plans to have a full online food and grocery offer for 2014, the specifics remain unclear. Moreover, its high profile discussions with Ocado - which are likely to lead to Ocado providing technological expertise, as well possible use of one of its distribution centres - have yet to yield any results. Morrisons continues to be a soundly-run retailer and many of its current investments - particularly in relation to online and convenience - are set to leave it significantly better positioned in the medium-to-long term. However, it will continue to face short term challenges as it plays catch up with rivals. Moreover, while the grocer is displaying greater adeptness in communicating its key points of differentiation, there is still much work to be done around strengthening price perceptions."

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers

"Morrisons is making slow, grinding progress, but time is not on its side. There are some signs of optimism, such as an increase in sales, continued promotional activity and an attractive dividend yield of 3.8%. However, the company is something of a laggard in the increasingly important twin strategies of online and the convenience store format. Indeed, whilst rivals continue to hone their online offerings and increase their focus on convenience stores, Morrisons is playing catch-up and this will be an increasingly difficult gap to close. This is quite apart from the ferocity of competition in the sector and a generally crimped household budget. The shares have made some ground over the last year, having risen 8%, although this compares to a 19% hike for the wider FTSE100. The current pace of progress is not enough to tempt investors and the market consensus of the shares as a sell is unlikely to be troubled."