British supermarket chain Morrisons published its very disappointing 6-months results: turnover dropped 5.1 % to 8.1 billion pounds (11 billion euro), while like-for-like turnover dropped 2.7 % and pre-tax profit even went down 47 %.
Two shimmers of light in a cloudy sky
Morrisons highlights two (small) positive points: one is that the drop in like-for-like turnover is not as bad as it was in the first two quarters of the previous fiscal year (2014/2015), when turnover dropped 7.1 and 7.6 %. Another positive point, according to Morrisons, is that the number of items purchased per customer did not drop as much as last year either.
These shimmers of light may seem nice in a time when cloudy skies fly over Morrisons, but management does not seem to get away with these excuses this time around: Morrisons is getting clobbered and there is no end in sight despite its optimistic claims in its press release about this 6-month results. "We expect underlying profit before tax will be higher in the second half of 2015/16 than the first."
"Morrisons will be an organisation that listens. During the first half, the new Executive and leadership teams have been listening hard to colleagues, customers, suppliers and shareholders. They tell us there is a lot for us to do", CEO David Potts said in a statement.
M-Local sale cost millions
That is a typically British understatement: Potts believes the company should improve the customer experience to help halt the continuous loss of (like-for-like) turnover. The company's full attention to do so will be focused on supermarkets, which is why it has decided to sell the 140 M-Local convenience stores it owns.
Morrisons was too late to enter the convenience store market and only buckled under the pressure to open a chain of its own quite late on, leading critics to believe the company failed to look at the right locations and only focused on numbers, which meant it had quantity, but not quality. The end result is an onerous chain of convenience stores that will lose the company 30 million pounds (41 million euro) as it will be sold for a mere 25 million pounds (35 million euro).
Competitors' price and service are better
Not only does the company have to deal with this huge loss, it also has to set aside 35 million pounds to create a new retirement fund. On top of that, it will also close down another 11 under-performing supermarkets and has put aside 20 million pounds (28 million euro) to restructure. Contrary to the millions lost in the M-Local sale and retirement fund, this restructuring cost will also be a blow to its future underlying profit.
This series of bad news items and the disappointing 6-month results have had a negative impact on Morrisons' share on the London stock exchange. It was remarkable to see the share rise last week, on the back of suspected acquisition rumours, but that profit has now evaporated and all that remains is the image of a troubled retailer that, according to analysts, trails the likes of Aldi, Lidl and Asda in pricing, while it cannot beat Tesco and Sainsbury's when it comes to service.