Morrisons, the smallest of the UK’s four main supermarket chains, reported the steepest sales drop in recent history, illustrating why the grocer slashed prices last week in an effort to regain shoppers.
Revenue at stores open at least a year fell 7.1% in the 13 weeks ended May 4, excluding gasoline and value-added tax, the Bradford, England-based retailer said today in a statement. That compares with the median estimate of 14 analysts surveyed by Bloomberg News for a 5.3% decline.
Same-store sales are unlikely to improve any time soon, Chief Executive Officer Dalton Philips said April 30 after the grocer stepped up the battle against discounters Aldi and Lidl and said it would cut prices by £1 billion ($1.7 billion) over three years. Of the UK’s big four grocers, Morrisons has been hurt the most by the march of the budget chains, which are winning shoppers with cheap and low-frills offerings.
“It’s probably Morrisons' worst ever performance,” said Andrew Gwynn, an analyst at Exane BNP Paribas in London. “They only started cutting prices at the very end of that period so the deflationary impact would be pretty small.”
Morrisons' shares fell 1% to 188.9 pence in early London trading. They’ve declined 27% this year.
It last week escalated the grocery battle by cutting prices by an average of 17% on 1,200 products from fruit scones to baby wipes, the second round of cuts since Morrison said on March 13 that the strategy will cause profit to plunge.
Profit Forecast
The price cuts will reduce sales going through the tills and be deflationary, Philips said last week.
“We are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers,” the CEO said in today’s statement.
The grocer today confirmed its forecast for full-year underlying pretax profit of £325 million to £375 million. Earnings in the previous fiscal year were £785 million on that basis, the second straight decline.
The company also reiterated that it is on track to open 200 convenience stores by the end of the year, and said its online grocery service, started in January, is performing ahead of expectations. It will make its first London delivery on May 12.
