ison Supermarkets Plc (MRW), the smallest of the U.K.’s four main grocers, said profit will plunge this year and pledged to sell £1 billion ($1.7 billion) of property, sending the shares down the most since 2008.Underlying pretax profit will be between £325 million and £375 million in the current fiscal year, the Bradford, England based company said in a statement today. Profit in the last fiscal year fell to £785 million, the grocer’s second straight decline.
With its stock down more than 20% since September, Morrison has been the target of investor pressure to get a better return from its property portfolio and its stores. The company today pledged to spend £1 billion to improve its core supermarket business while exiting Kiddicare and Fresh Direct. Morrison is also ramping up its online offering, which started this year, and opening more of its smaller shops in a bid to win back shoppers lost to discounters and larger rivals.
The new strategy is “Surprising! The positive is that they’re really prepared to try and invest to fix the problems,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “The negative is that it means profit is loosely half what the market was expecting and there’s no obvious message on how they recover from that.”
Morrison shares dropped as much as 11%, the biggest intraday declined since October, 2008, and traded 10% lower at 209.20 pence a share as of 8:08 a.m. in London. Rivals J Sainsbury Plc dropped as much as 7.9% and Tesco Plc plunged as much as 4.7%. Morrison will pay a total dividend of 13 pence a share, up 10%.
The company will shed the real estate over the next three years. Morrison has come under pressure from hedge funds and investors seeking to get a better return from the company’s £9 billion-pound real estate portfolio. The company will continue to own 80% of its property, Chief Financial Officer Trevor Strain said on a call today.
The property is also the subject of interest from private-equity funds including CVC Capital Partners Ltd., people familiar with the matter said last week. CVC and Carlyle Group LP were awaiting the outcome of the property review after being approached about working with members of the founding family of the 115-year-old company, the people said last week.
“In trading terms this has been a disappointing year for Morrisons, with consumer confidence and market conditions continuing to be challenging,” Chairman Ian Gibson said in the statement. “It has however been a period of significant strategic progress as we lay the foundations for a stronger future. Our financial position remains strong.”
Chief Executive Officer Dalton Philips has repeatedly blamed Morrison’s late entry into convenience and online operations -- the grocer started its Internet business on Jan. 10 and has about 100 convenience stores -- for the company’s failing fortunes. By comparison, market leader Tesco Plc (TSCO) started its U.K. home-delivery business 17 years ago and the unit is now profitable. Tesco also has 1,601 Tesco Express stores.
In his four years as CEO, Philips has focused on Morrison’s fresh-food offering, promoting the provenance of its fresh meats and revamping the stores with in-store butchers, fishmongers, cheese counters and produce presented in wooden crates and baskets.
So far it hasn’t worked. While German discounter Aldi’s sales growth accelerated to a record in the last 12 weeks, Morrison’s revenue fell 3.2% and its market share declined to 11.1% from 11.8% for the same period a year earlier, Kantar Worldpanel said March 11. The company’s comparable sales, excluding fuel and value-added taxes fell 2.8% in the last fiscal year.
Morrison’s underperformance “has little to do with under-representation in convenience or online,” said Clive Black, an analyst with Shore Capital in Liverpool, England. “Morrison has ostracized core customers whilst failing to attract new footfall in an increasingly competitive market; in our view, the key driver of this process has been ‘Fresh Formats,’ which was particularly ill-timed given the growing popularity of limited range discounters and high-street value stores.”
