LONDON (Reuters) - Slowing sales growth at Morrisons (MRW.L) sent its shares down as much as 7 percent on Thursday, despite rising profit and its chief executive saying the British supermarket chain’s turnaround is on track.
CEO David Potts said Morrisons was making progress in its supermarkets and beyond as results showed a seventh straight quarter of underlying sales growth.
Morrisons, based in Bradford, northern England, is turning around its more than 500 UK stores while also pursuing online and wholesale markets.
That plan had driven a 27 percent rise in its shares over the past year, making Morrisons one of the most expensive stocks in the sector on a price/earnings (PE) basis.
But the shares were down 5.3 percent to 232 pence by 15.22 GMT, with some analysts disappointed that like-for-like sales had risen only 2.6 percent in the second quarter after a rise of 3.4 percent in the first. Others had hoped for a full-year profit upgrade or hints of future special dividends.
“We don’t read anything into it,” Potts said of the slowdown, pointing out shopper numbers were up 3.9 percent, while finance chief Trevor Strain said it was a strong performance given the market context.
Potts, a former executive at market leader Tesco (TSCO.L), joined Morrisons in 2015 to lead a recovery after it was hurt by the rise of German discounters Aldi and Lidl in its northern heartland and mis-steps by previous management.
He has overseen a steady improvement in trading, with more competitive prices, improved product ranges and availability as well as better customer service in refurbished stores.
Potts has also overhauled the company’s online strategy through a renegotiated agreement with distributor Ocado (OCDO.L) and struck wholesale supply deals with Amazon (AMZN.O), Rontec petrol forecourts and the McColl’s (MCLSM.L) convenience chain.
“We’re holding our own as we fix our supermarket business and then look ahead to growing into bigger markets,” Potts said.
Morrisons, which trails Tesco, Sainsbury’s (SBRY.L) and Wal-Mart’s (WMT.N) Asda in annual sales, made an underlying pre-tax profit of 177 million pounds in the six months to July 30, in line with analysts’ expectations and up nearly 13 percent from the same period last year.
Prior to Thursday’s update, analysts’ average forecast for 2017/18 pre-tax profit was 371 million pounds, up 10 percent from the previous year’s result but still a long way from the heady 935 million pound profit achieved in 2011/12.
Morrisons increased its “medium term” target for incremental profit from wholesale, services and online operations to between 75 million pounds and 125 million pounds, from 50-100 million pounds previously.
The group forecast total wholesale sales to all its partners would exceed 700 million pounds by the end of 2018 and more than 1 billion pounds “in due course”.
Potts said that Morrisons is “learning to manage” inflation as imported food prices are driven higher by a weaker pound and he expected it to start to “taper down” beyond this year.
Morrisons also cut net debt to 932 million pounds — below its 1 billion pound year-end target — and raised its interim dividend 5.1 percent to 1.66 pence.
Editing by David Goodman and Alexander Smith