Morrison shares tank after sharp drop in Christmas sales - UPDATE

9th Jan 2014 15:18

- Full-year profits to come in at bottom end of forecasts- LFL sales fall by 5.6 per cent over Christmas- Online shopping service "ready to launch"The share price of Wm Morrison tanked on Thursday after a disappointing sales performance over the key festive season with like-for-like (LFL) sales dropping sharply.The company warned the market that full-year underlying profits would likely come in towards the bottom end of forecasts, causing analysts across the board to scale back estimates for the supermarket.Forecasts had pencilled in an underlying profit of between £783m and £853m for the year ending February 3rd 2014, down from £901m last year. The stock was trading down 8.4% at 232.9p before the close of trade on Thursday.Morrison, the fourth-largest UK grocer behind Tesco, Sainsbury and Wal-Mart-owned Asda, said that total sales excluding fuel and VAT were down 1.9% year-on-year in the six weeks to January, but fell by a substantial 5.6% on a LFL basis.This performance shocked the majority of analysts, given that the company had actually forecast a return to LFL growth in the final three months of its financial year, compared with the 2.4% decline in the third quarter.Analysts at Shore Capital said that Morrison "surprised us with a quite awful trading update", while those at Oriel Securities said that the "slowdown in core trading is most worrying".It was a tough Christmas selling season for the British supermarkets on the whole with Sainsbury reporting flat LFLs and Tesco registering a 2.4% decline.However, Morrisons said that difficult market conditions were intensified given the growing need for online shopping and convenience services in the UK - areas "where Morrisons is currently under-represented".Nevertheless, Morrison, which is currently developing an online shopping service with Ocado to compete with its rivals, said that its online shopping service is "ready to launch".Analysts at broker Panmure Gordon reduced their profit forecasts for Morrison following the statement and maintained a 'sell' rating, saying that the results reveal a "fundamental weakness" in Morrison's business model. This "extend[s] to more, we believe, than just a lack of exposure to convenience and online, although clearly this is the main issue".Meanwhile, Joe Rundle, Head of Trading at ETX Capital, said that shoppers in the UK are now being more sensible in the way the buy food and the 'mid-price' grocers such as Morrison and Tesco are missing out. He said that customers are "either picking the higher end, (Waitrose for example and even Sainsbury's to some degree) or the low-end (Aldi and Lidl- both reporting strong Xmas trading numbers)".BC