Morrison's half-year profits fell on nearly flat sales - UPDATE

12th Sep 2013 07:06

Morrison Supermarkets reported a 21.8 per cent drop in pre-tax profit for the six months to August 4th, blaming a challenging market. The outfit, however, does expect sales to improve in the second half.Profit before tax fell to £344m from £440m as total turnover was nearly flat at £8.938bn, versus £8.939bn last year, and the grocer invested in a restructuring.Store turnover of £6.8bn, excluding fuel, was up by 0.8%, which meant a like-for-like decrease of 1.6% despite a contribution of 2.5% from new stores.Underlying profit was down 10% to £401m and underlying earnings per share dipped 2% to 12.86p.Operating profit came to £381m, 20% lower than in the previous year with the operating margin having fallen by 100 basis points to 4.3%.Group builds presence in key growth channelsDuring the period the group worked to improve its multi-channel offering with a shopping website and expand its convenience store offering. Morrisons.com will make home deliveries of food by the end of January 2014, through a long term service agreement with Ocado.The company now has 33 M-local convenience stores trading and is on schedule to have 100 stores operating this year. Morrison opened seven new supermarkets, including one replacement and launched 2,800 of its own-brand products. "We have also made significant progress in building our presence in the key growth channels of convenience and on-line," said Chief Executive Officer Dalton Philips.Net debt increased by £850m year-on-year to £2.5bn versus year-end guidance of £2.7bn.Full-year outcome expected to be broadly "in-line"The supermarket anticipates an improvement in sales during the second half and said the group's performance for the full year will be broadly in line with previous expectations.Interestingly, perhaps, the above rests on the assumption that there will be no significant change to the challenging economic environment in the near future.That comes despite the fact that in Morrison's own words early indications of a recovery in the UK economy are "encouraging", since - as the firm goes onto explain - "we are yet to see this impact on consumers' pockets."For analysts at Jefferies: "As expected Morrisons reported a mixed first half given the margin effort of reversing the fourth quarter 2012/2013 trading pressures and the increasing revenue costs of growth initiatives. Still, undemanding valuation and a clear reduction in capital expenditure [capex] intensity from here onwards point to an improving outlook (admittedly partly reflected by the circa 20% share price rebound of the past 3 months)."Based on the positive outlook, the firm raised its interim dividend 10% to 3.84p, in line with its stated policy.RD