UK grocer Morrisons sees more sliding profits as sales drop 1.6pc
Morrisons has slumped to another six months of sliding profits and sales as it said its customers have yet to benefit from the gradually improving economy.
The UK's fourth-biggest grocer delivered a worse-than-expected 1.6pc decline in underlying sales in the six months to the start of August, while pre-tax profits dived 22pc to £344m (€409m).
It said customers' incomes are shrinking under relentless pressure from stubbornly high inflation, as the recovery proves "slow and fragile".
Customers are increasingly shopping about for bargains, it added, with more than 40% visiting multiple supermarkets on one shopping trip, and they are buying less food as they stick rigidly to budgets.
But the chain reported more progress with expanding its network of convenience stores. It is trading from 33 and expects to have 100 by the end of its year.
Chief executive Dalton Philips said like-for-like sales are steadily improving after falling 1.8pc in the three months to May 5, adding he expects another sales improvement in the second half as its turnaround bears fruit.
Morrisons said it is on track to start selling food online - through a tie-up with internet grocer Ocado - by the end of January.
It said 169 stores have been overhauled with its Fresh Format, which emphasises the quality of its food and shows off its butchers, bakers and fishmonger.
The chain said: "Whilst there are early signs that the UK economy has started to turn a corner, the grocery market continues to be a very challenging environment in which to operate.
"Consumers are continuing to react to these pressures by becoming more discerning, and seeking to get better value for money by both shopping across multiple channels and using innovative approaches to the way they shop."
Morrisons also joined rivals in signalling an end to rapid expansion of new space. It will slash its space growth to around half the rate over the past five years, at 350,000 square feet annually.
In future it expects sales growth mainly to be driven by online and convenience, both of which use less capital than opening big new stores.
Turnover was level at £8.9bn, but net debt surged to £2.5bn from £1.7bn a year earlier as it invested heavily.
Analysts had on average been expecting like-for-like sales to decline 1.5pc over the half. They expected pre-tax profits to slide 13pc to £383m from £440m a year earlier.
Morrisons, which has more than 500 stores across the UK, plans to slash capital spending from an expected £1.2bn this year to about £650m annually in a couple of years.
The retailer also said it may "realise value" from its estate - of which it owns about 90pc - implying that it is considering selling sites and leasing them back. However, it insisted the majority of its estate will remain freehold.
Its estate is worth around £9bn - making it more valuable than Morrisons' £7bn-plus market capitalisation.
Shares in the retailer advanced more than 2.5pc, making it the biggest climber on the FTSE 100 Index.
Analysts at Oriel Securities said that while the group's results were unimpressive, its new cash-generation plans will please the City.
They said: "In many respects this is what the market has been hoping for from the UK food retailers from some time, but capital expenditure and the space race has always got in the way in the past.
"The market will approve on Morrisons' strategy change."