Morrisons points to postChristmas retail comedown

The sector outlook remains weak, despite Morrisons’ less bad than expected sales

Wm. Morrisons Supermarkets showed no signs of having outperformed the UK high street’s recent unimpressive trend on Tuesday, though its stock still enjoyed its best day since mid-December. The rise of as much as 3.7% acknowledged that key sales at Britain’s third-largest grocer by market share were less bad than expected. Sales at stores open for over a year and excluding fuel—called like-for-like sales—fell 1.1% in the third quarter. That compared to an average analyst estimate, published on the group’s website, of 1.6%. The group didn’t break out data for the key Christmas weeks, though within the trend of the quarter and beyond, the likelihood of sales growth over the festive season looks low.

Industry data, also out on Tuesday, continued to paint a less than solid picture too, including for Morrisons. Market researcher Nielsen said U.K. grocery sales over the last four weeks rose just 0.5% from a year earlier, the slowest growth since 2014. The latest release by another researcher, Kantar, showed grocery sales rose just 0.2% in the 12 weeks to 29^th December, the weakest rate since 2015. Furthermore, Morrisons saw another loss of UK market share in 2019’s final months, according to Kantar, leaving the £4.7bn group with 10.3% compared to 10.6% a year earlier.

The overhang of weakness across the sector takes a faint shine off data at the operator level. This included Morrisons’ 22-week like-for-like reading. It dropped 1.7% when analysts were expecting a 2.2% slide. Morrisons, which operates around 500 UK stores, said trading conditions remained “challenging”, with customer uncertainty consistent with that seen over the past year. The comments put a dampener on hopes for an outright ‘Boris Bounce’ in the wake of the Conservative Party’s landslide election win last month. It will help clear the Brexit logjam responsible for chilling consumer sentiment, though deeper damage to the economy is set to linger.

In the wake of its sales update, Morrisons continues to see profit for the 2019/20 year “as within the current range of analysts’ forecasts”. With investors expecting pre-tax profit growth to come in below 2%, expectations were already low. But the impression that Morrisons stayed on track by the skin of its teeth is inescapable. A continuation of lacklustre growth in Morrisons new financial year that will begin in April, therefore looks to be the line of least resistance. On that basis, after a 10% share price decline over the past year, it’s tough to see much upside for Morrisons shares on the back of recent trading, even if sales weren’t quite as meh as expected.

A similar theme was evident across the sector on Tuesday. Shares in Sainsbury’s also rose. Tesco stock, last year’s best performer among the Big 3 supermarkets, only inched higher. A 25% rise in 2019 may leave the shares more vulnerable to a sell-off in the wake of a lacklustre seasonal performance than rivals. Sainsbury’s will report sales on Wednesday, with Tesco’s update scheduled for Thursday.

Chart points

• MRW continues to track close to lows last seen during the 2016, around 200p. It has erased gains that peaked as high as 270p in late August 2018
• One implied positive is that the stock has broken out of the falling channel trend over about a year between September 2018 to last August. The breach hasn’t enabled the shares to rise though, given that a horizontal channel has immediately formed to replace the declining one
• The trend now looks indecisive, as corroborated by MRW’s zig-zagging RSI oscillator. Even if 190p support holds the picture implies that the momentum required to overcome the 211p ceiling is lacking
• Loss of 190p support would obviously point to a further test of last August’s 176p cycle low.

Wm. Morrison Supermarkets Plc. – Daily 07/01/2020 15:07:45

Source: Bloomberg