Morrisons issue another profit warning and rival supermarkets Sainsbury"s and Tesco see shares dip

By

Rupert Steiner

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Embattled grocer Morrisons sent a shiver down the High Street after issuing another profit warning that also wiped 8 per cent off the shares of rival Sainsbury’s and 4.9 per cent off Tesco.

Britain’s fourth-biggest supermarket chain fell 12 per cent after declaring a price war, investing £1billion in cuts to compete with discount chains Aldi and Lidl.

Investors fear the battle will leave all of the big supermarket players licking their wounds.

Heavy losses: Morrisons sent a shiver down the High Street after issuing another profit warning that also wiped 8 per cent off the shares of rival Sainsbury’s and 4.9 per cent off Tesco

Morrisons posted an annual loss after investment in a new online platform and convenience stores weighed heavily on profit, as did writedowns on the value of property.

Chief executive Dalton Phillips unveiled a range of self-help measures, including the sale of £1billion of property over the next three years, and a loyalty card.

This was not enough to prevent the shares falling 27.8p to 205.2p.

The business has been the weakest of the big four grocers, having been late to develop a convenience format and online offer.

It was the worst performer over the crucial Christmas period, triggering its first profit warning.

Philips is under pressure after losing market share to the discounters but chairman Sir Ian Gibson gave him his full backing and said investors were comfortable with growth plans.

‘You don’t make bold steps like this without the support of the whole board and yes, we back the plan and the executive,’ Gibson said.

‘In trading terms this has been a disappointing year for Morrisons, with consumer confidence and market conditions continuing to be challenging.

It has, however, been a period of significant strategic progress as we lay the foundations for a stronger future. Our financial position remains strong.’

It posted a loss of £176million for the 52 weeks to February 2, down from £879million on sales of £17.7billion, down from £18.1billion. Stripping out the effect of new stores, underlying sales fell 2.8 per cent.

Pre-tax profit before exceptional items was down to £785million from £901million the previous year.

But the market was more spooked by new projections for the year. Morrisons anticipates underlying profits of between £325million and  £375million – significantly lower than the £732million analysts were expecting.

Despite this, it still felt able to increase the dividend to 13.65p a share from 11.8p, saying it recognised the importance of the return to shareholders.

Philips said: ‘There is a major and permanent change to the way people are buying their groceries.

Those who bury their head in the sand will face a hard time – we are prepared to make the difficult decisions.

We also had our own structural weaknesses – our computer systems were so antiquated we could not offer a fast growing service.

‘Bold plans take time to execute and not all benefits will be immediate.’

Morrison is writing off £163million on its investment in the Kiddicare baby retailer it bought to learn about the online world, and is selling its stake in New York’s Fresh Direct online grocer.

Darren Shirley, an analyst at Shore Capital said: ‘Morrison has confirmed a very poor year of trading in 2013-14 embracing significant writedowns to its land bank … along with management confirming Kiddicare has been an expensive mistake.

‘Morrison’s weak trade and collapse of trade in recent months represents a change in industry circumstances.

It will be hoping that its new trading strategy will stem a severe downturn in trade.’

Tesco and Asda have embarked on aggressive price-cutting to lure in cost-conscious shoppers.

But there are fears that profit margins at Morrisons, already under pressure, will be ravaged by any price war.

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Morrisons issue another profit warning and rival supermarkets Sainsbury"s and Tesco see shares dip