Morrisons to bear scars of UK's supermarket price war
By James Davey
LONDON (Reuters) - Britain's fourth biggest supermarket Morrisons is expected to report its lowest annual profit in eight years on Thursday, hurt by a fierce industry price war, and is likely to signal lower dividend payouts going forward.
Last week Morrisons, which trails market leader Tesco, Asda and Sainsbury's, named former Tesco executive David Potts as its new CEO, succeeding Dalton Philips, who was ousted in January after failing to revive the grocer over his five year watch.
Potts, who will start on March 16, is tasked with restoring growth in a brutally competitive market, where the traditional big four players are grappling with the rise of discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL].
New chairman Andrew Higginson, who will present the year to Feb. 1 results, reckons getting Morrisons back to robust health will take three to five years.
"There’s a lot of customers out there who would love to be shopping in Morrisons but can’t at the moment because we’re not doing a good enough job," he told Reuters. "If we improve the work we do for them they’ll come back."
Analysts expect Potts to move swiftly to sharpen Morrisons' store standards and customer service, as well as improve its product offer and merchandising.
The firm has guided to a pretax profit before one off items of 335-365 million pounds for the 2014-15 year, while analysts' average forecast is 342 million pounds. That's less than half the 785 million pounds made in 2013-14 and a third straight year of decline.
The slump reflects Morrisons' strategic U-turn last year when it said it would spend 1 billion pounds on price cuts over three years to stem the loss of shoppers to the discounters.
Despite the profit fall Morrisons has pledged to raise its 2014-15 dividend to not less than 13.65 pence, up 5 percent.
However, analysts reckon the firm will flag a reduced payout for the current year. Morrisons' joint broker Jefferies is forecasting a dividend of 7.61 pence for 2015-16.
The savings could be invested in further price reductions. Tesco has said it will not pay a final dividend this year, while Sainsbury's has indicated lower future payouts.
Shares in Wm Morrison Supermarkets are down 13 percent year-on-year, though they have risen 11 percent over the last three months on recovery hopes.
Buyers of Morrisons stock argue that though its underlying sales continued to fall over the Christmas period, a more competitive pricing strategy is delivering better sales trends, with items per basket and number of transactions improving.
Morrisons, unique among British supermarkets in making over half of the fresh food it sells, is also making progress in accelerating cost savings and reducing its net debt. It has more freehold stores and a better pension position relative to its main rivals.
The firm's critics argue it has the worst growth outlook of the big four, given its late entry into the better performing parts of the market, namely convenience stores and online shopping. They also question the wisdom of Morrisons' lengthy 25-year distribution deal with online grocer Ocado and the impact of its new customer loyalty card on profit margins.
(Reporting by James Davey; Editing by Elaine Hardcastle)
