Morrisons' half-year results: What the analysts say

“They are setting the tone of ‘green shoots’ by pointing to ‘items per basket’ in produce, a very misleading number in our view due to ‘food for free’ vouchers. It ignores the fact that customers keep switching away. Morrisons point to ‘lower prices driving volume recovery’.

“We commend the management team on finding new measures. Normally first signs of hope are expressed in better footfall. By commenting on ‘items per basket’ you ignore the impact of all the baskets you keep losing. As we would expect most loyal customers with bigger baskets to stay longer… customers continuing to switch away will have the impact of increasing ‘items per basket’.

“Similarly they point to lower ‘promotional sales participation’, but that has the handy effect of ignoring the impact of bazooka vouchering they have been doing, effectively giving away food for free. In our view, these are not the everyday low prices driving true traffic improvements, but desperate marketing activities and creative new measures creating the illusion of green shoots.”

Bruno Monteyne, analyst at Bernstein Research

“The slide continues for Morrisons, though this latest tumble in sales is even deeper than previous periods. Though it is not alone in seeing a squeeze, as evidenced by the demise of market leader Tesco, pressure is now quickly mounting on its leadership to act faster on improving its relevance.

“Morrisons is clearly losing ground to Aldi and Lidl which are quickly developing into compelling ‘value’ rather than just ‘discount’ grocers as they ramp up their UK presence.

“We’ve previously stressed that Morrisons does have some brand strengths. Its vertical integration, via ownership of various abattoirs and farms, especially sits well with consumers’ increasing discernment of sourcing and quality standards.

“The problem is that it is constantly playing catch up, and time is not on its side. Unlike Tesco, which has been on the forefront of market developments, and it could be argued is suffering from some natural maturity having previously held around one third of the market, Morrisons’ strategy has largely been reactive and as such less convincing.

“Though Morrisons is not alone, in that mid-market peers Sainsbury’s, Asda and most notably Tesco are also suffering. As the smallest retailer of the group, it has evidently offered the discounters especially easy pickings.”
George Scott, analyst at Conlumino

“Morrisons reports improving trends below surface, with like-for-like items per basket down 3.2% in the second quarter after being down 5.9% in the first quarter – suggesting plans are gaining some traction. This statement is much better than worst fears, even though bad in most absolute senses. We would expect shares to trade up given dividend and guidance reiteration and heavy short interest.”
James Anstead analyst at Barclays Retail

“If cost inflation can be kept to a minimum then any improvement in sales should start to stabilise trading margins. However, we still have Asda investing aggressively in key staple product lines and Tesco could be building a £2bn war chest to invest in price and new formats in 2015. Morrisons management need to explain the worsening sales in Q2; the outcome of a trial of different loyalty cards, reducing range, any changes to capex (including capital creditors for stores not to be built), the progress of on-line sales growth, any impacts from discounters moving into higher priced products (Lidl – Wine) and the dilution impact of the continued roll-out of convenience.”
Mike Dennis, analyst at Cantor

“The brutal reality of the numbers contrasts starkly with the upbeat language of the report.

“For a retailer that has lagged dangerously far behind the technology curve, the idea that it will become a flag bearer of the next generation of grocery retail will ring hollow.

“In six months’ time, a third of the way through the three-year plan, there will have to be a material boost to the numbers or the great turnaround will be on decidedly shaky ground.

“My worry is that a strategy that revolves around price cutting is a dangerous one. It certainly betrays a lack of imagination, a reversion to retail type.”
Phil Dorrell, director at retail consultants Retail Remedy

“Market share data in recent weeks, most notably Kantar, has indicated that Morrisons has witnessed an improvement in trading performance since its half-year end in July, management outlines in its statement improving items per basket albeit at a lower value.

“Over this time period, the group has benefited from favourable comparatives and we note considerable vouchering and the like. Hence, it is too early for us to over-react to a demonstrably better trading trajectory but if it is sustainable then the model that management presented in March may be starting to gain some traction.”
Darren Shirley, analyst at Shore Capital