Morrisons to see profits boost as road to recovery continues
City analysts forecast the grocery giant will post a 10% rise in underlying pre-tax profits to £371 million.
Morrisons is expected to report an increase in annual sales and profits this week as the supermarket continues to outperform its peers.
City analysts forecast the grocery giant will post a 10% rise in underlying pre-tax profits to £371 million and a like-for-like sales increase of 2.7% when it reports to the market on Wednesday.
George Salmon, equity analyst at Hargreaves Lansdown, said investors will be keen to know if sales are being driven by higher prices or bigger basket sizes.
“We expect the group to round off its financial year with another positive showing.
“To what extent growth is being driven by higher prices, and how much is coming from higher sales volumes, are the real questions,” he said.
Supermarkets across the board have had to increase shop prices as costs have risen since the pound’s collapse following the Brexit vote.
Growing sales volumes over Christmas is cause for optimism, but investors will nonetheless be looking for assurance that trend is continuing George Salmon, equity analyst at Hargreaves Lansdown
While moderate inflation can help supermarkets boost their sales and profit margins, it also poses a risk as it results in diminished consumer spending power.
But Morrisons has been among the strongest performers compared to its peers over the past 12 months, with a turnaround led by chief executive David Potts bearing fruit.
Over Christmas, Morrisons was a stand-out performer among the so-called Big Four thanks to surging sales of its premium range and efforts to keep a lid on prices.
Group like-for-like sales jumped 2.8% in the 10 weeks to January 7, with retail sales up 2.1% and wholesale 0.7% ahead.
It said it enjoyed an “especially strong” festive season as sales picked up pace in the last seven weeks, up 3.7% across the group.
“Growing sales volumes over Christmas is cause for optimism, but investors will nonetheless be looking for assurance that trend is continuing,” Mr Salmon added.
Mr Potts’ herculean efforts in turning the chain around have come as the Big Four – Tesco, Asda, Sainsbury’s and Morrisons – remain locked in a bitter price war sparked by German discounters Aldi and Lidl.
But Morrisons has not been immune from market pressures.
Earlier this year Morrisons axed 1,500 shop floor workers as part of a restructure that will see more customer service staff and fewer managers.
It followed similar cost cutting drives from Tesco, Sainsbury’s and Asda.
Investors will also be keen to hear an update on Morrisons’ wholesale deal with McColl’s.
The tie-up – announced last August – will see the group supply McColl’s network of stores and also see it relaunch the Safeway brand.
Mr Salmon said: “We anticipate Morrisons giving more detail on how the group is getting on supplying McColl’s stores, as per the recent wholesale agreement.
“It’s been adding 25 stores a week since January, so while there is some way to go before all 1,650 are in the network, we should get an idea of what progress is being made.
“Longer-term Morrisons expects to generate £1bn of annual revenue from the wholesale business.”