Morrisons sales decline eases but underlying trends weak, says ShoreCap

13th Jan 2015 10:45

Markets may have reacted positively after Wm Morrison's agreed to part company with chief executive Dalton Philips alongside a small improvement in sales trends, but Shore Capital remains unconvinced.The broker kept a 'hold' rating on the stock, saying it was disappointed with like-for-like (LFL) sales falling by 3.1% over the six weeks to 4 January, compared with its forecast of a 1.5% decline."Given the comparatives, we deem this to be a disappointing update and Morrison is still the worst performing of the Big Four superstore groups," said analysts Clive Black and Darren Shirley.They said recent trading was "set against a quite dreadful backdrop": third-quarter LFL sales fell 6.3%, while festive trading over 2012 and 2013 also suffered from sharp declines in LFL sales."Accordingly, the improving trend revealed for the Christmas 2014 trading period is much needed, albeit appears to be as much about favourable multi-year comparatives rather than any notable advancement in underlying trading in our view," the analysts said.Shore Capital said it was keeping its forecasts unchanged for the full year and continues to expect a pre-tax profit for the year ending January 2015 of £335m, at the bottom end of the £335m-365m guidance."More important to us is the potential financial out-turn that can be delivered over the following two financial years," Black and Shirley said."Comparatives for [the financial year ending January 2016] are extremely favourable and, frankly, if Morrison's cannot deliver a positive out-turn against LFL sales that fell by 7-8% for much of the current financial year then it is questionable as to whether the business ever will."They added: "With extremely favourable comparatives, the risk-reward equation may be looking a little more favourable, but let us not be too clever at this stage."The stock was up 5.1% at 186p by 11:17 on Tuesday.