Morrisons sales fall in first quarter under Potts: What the analysts say

“Morrisons’ new chief executive David Potts’ first numbers show no trading momentum as yet. Of the -2.9% fall in like-for-likes, +1% was contributed by the online growth, which Andy Higginson has pointed out is not a priority, so the main stores are declining -3.9%. That shows the extent of the job at hand.

“David Potts has reiterated the priority laid out by Andy Higginson (i.e. trading momentum) specifically “making the core supermarkets strong again”. We can expect a full update on strategy in September at the interim results, but it is unlikely the focus will move away from trading momentum.

“Morrisons, although not saying what the total profit will be, have suggested that whatever they do in the first half will largely be sufficient and that investors can expect better profits in the second half. If the UK market competitiveness intensifies, Morrisons may be left with a choice of abandoning the focus on trading momentum or abandoning this guidance.” Bruno Monteyne, Bernstein

-

“Since the start of the calendar year Morrisons has embarked upon substantial change aimed at improving its ‘customers’ shopping trip’. It is clearly still very early days in David Potts’ tenure but we sense he is bringing a deep-rooted and fundamental change to Morrisons that is for the better.

“Whilst not easy, he has identified the need for significant senior ‎management change at first base, which has been expedited with seven out of the 10 management board either leaving the business or changing roles whilst today Morrisons has announced the recruitment of Darren Blackhurst as the group’s new commercial director, responsible for all trading functions. Blackhurst is an experienced executive having also worked at Tesco, Asda, Matalan and B&Q.” Clive Black, Shore Capital

-

“David Potts will only be cut so much slack. After just seven weeks at the helm of Morrisons, no one expected him to have turned round the ailing brand’s fortunes. Yet. But with price deflation eating into profits and the slide in sales speeding up rather than slowing in the first quarter of the year, the huge scale of his task his clear. His honeymoon is already a distant memory.

“Morrisons’ chief executive certainly began with the right approach. He realised the brand had become hierarchical and top heavy under his predecessor, and acted swiftly to slash costs at head office and get more staff where they are needed – on the shopfloor.

“But radical though they are, Potts’ reforms will take time to have an impact. Morrisons continues to be the hardest-hit of the big four by the rise of the discounters, and its limited number of non-food items means it feels the pain of the food price war more acutely than its rivals. Slashing prices may improve sales volumes but if it comes at the expense of profit, the brand’s steady decline will not be checked.” Paul Thomas, Retail Remedy

-

“Morrisons’ latest like-for-likes are nowhere near as bad as the same quarter last year but they’re still bad. Building trading momentum is the focus but the forces opposing Morrisons are strong. With its northern bias, it has the most to fear from Aldi and Lidl. At the same time it hasn’t got a large convenience store and internet base to protect it.

“With performance down on the preceding quarter, £1bn of price cuts and improving the quality of products doesn’t seem to have helped stem the decline. In changing the executive team, significantly increasing the store staff, committing to further price cuts and installing Express tills in each store, David Potts has done the right things since he arrived.

“But can he save Morrisons from further decline? Only when his strategic review emerges in September will we know whether he has the clarity of purpose of Tesco’s Dave Lewis. As unpalatable as it is, Morrisons may well be in terminal decline.” John Ibbotson, Retail Vision