May 7, 2015 / 6:20 AM / 5 years ago

Morrisons' latest sales fall shows new boss' uphill battle

LONDON (Reuters) - Another fall in sales at Morrisons (MRW.L), Britain’s fourth biggest grocer, hit the retailer’s shares on Thursday and highlighted the huge task new boss David Potts faces in trying to turn around the business.

A Morrisons sign is seen outside a supermarket in London January 9, 2014. REUTERS/Stefan Wermuth

Morrisons, in common with rivals Tesco (TSCO.L), Asda (WMT.N) and Sainsbury’s (SBRY.L), is battling record food price deflation and waging a price war to stem the loss of shoppers to discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL]. But as the smallest of Britain’s big four Morrisons has a relative scale disadvantage.

Bradford, northern England-based Morrisons said sales at stores open more than a year, excluding fuel, fell 2.9 percent in the 13 weeks to May 3.

The fall was slightly less than analysts had expected but bigger than a 2.6 percent drop in the fourth quarter of Morrisons’ 2014-15 year. The company’s like-for-like sales had slumped 7.1 percent in the first quarter of 2014-15.

The update is the first presided over by chief executive Potts, the ex-Tesco man who succeeded the sacked Dalton Philips on March 16. Potts said he would present his plans for the business in September.

Morrisons had reported its lowest profit in eight years in March and said it would cut its dividend.

Analysts noted that during the quarter, online contributed 1 percent sales growth, meaning its stores had a decline of 3.9 percent.

That shows the extent of the job at hand, Bernstein analyst Bruno Monteyne said.

“The task of repositioning Morrisons is much harder than for Tesco as it has less competitive advantages and it will take much longer than what currently is embedded in consensus margin expectations.”

All of Britain’s supermarkets are having to adjust their businesses to consumers’ changing shopping habits, with many favouring online or little and often visits to convenience shops over larger out-of-town stores.

Morrisons’ shares fell as much as 7.3 percent, though that also reflected them going ex the 9.62 pence dividend declared in March.

Potts has hit the ground running, axing the majority of the management team he inherited a week after joining and ordering a spring clean of the stores.

He has also cut head office staff by 720, at a cost of 30-40 million pounds, while adding 5,000 shop floor staff to improve customer service.

Potts, who has already visited 90 of Morrisons’ over 500 UK stores, has brought back staffed express checkouts and jettisoned the previous management’s computerised queue management system.

“Normally in Britain, a company like ours with 11 million customers a week, if you can start to present your stores a bit better you ought to be rewarded,” he said.

Morrisons would aim to be a simpler, leaner and cost conscious business, aiming to invest more for customers to build trading momentum.

The retailer said it anticipated that underlying profit before tax in the 2015-16 year would be higher in the second half than the first.

Finance director Trevor Strain said he was comfortable with analysts’ average full-year forecast of 356 million pounds but noted consensus had drifted down from 387 million pounds in March.

“We are very aware that there is a huge amount for us to do to turn this company around,” he told analysts.

The firm has appointed Darren Blackhurst as group commercial director. Blackhurst joins from Kingfisher’s (KGF.L) B&Q and formerly worked for Matalan, Asda and Tesco.

Additional reporting by Neil Maidment; editing by; Jane Merriman

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