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Morrison's beats the Christmas retail blues with friendliness

By Chris Bailey | Tuesday 9 January 2018


Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I know I have been loving up Tesco (TSCO) recently, but time today to talk about its Northern heritage industry peer Morrison (MRW) whose Christmas trading statement today observed that:

'Sales were especially strong over the Christmas and New Year period with Group LFL of 3.7% for the six weeks to 7 January, comprising Retail of 2.8% and Wholesale of 0.9%'

Well good for it - although the hard-nosed analyst in me could not help a smile at the observation that 'customers noticed our colleagues' friendliness even at the busiest times' among all the chat about the benefits of in-house production, a 25% volume rise in Best sales, 'Free From' innovations, an improved online offering and more sales to McColl's stores. If there was one big learning from Tesco's debacle of a few years ago it is that you hack off your customers and staff at your peril, so good to hear that 'Morrison's Dave' (the CEO David Potts) noted on the conference call that the 'staff played a blinder'. And the machines are doing their part too with the observation on the call that 'availability is an important part of our recovery' and 'machine learning' here means 'we can get better and better at that'.

A bigger concern for the whole sector remains margins and the company remains 'net investors in the shopping trip' to stay popular with its customers which is why despite input cost inflation the price of key Christmas items was apparently the same as last year (can't say I noticed this with my own purchases!!) Usefully the Kantar industry numbers (also conveniently released today) showed Morrison's lagging overall industry spend growth of 3.8% over the last 12 weeks as not only did Aldi and Lidl continue to aggressively expand but the aforementioned Tesco and the recovering Asda also grew a little faster. But there is enough growth to go around as all are taking share from independents. This is why the current financial year's expectations (+10% profit before tax) were left unchanged although the management did note on the conference call that profit hopes have already been upped twice on this number.

Putting it all together, the supermarkets remain in recovery mode and as more necessity-centric businesses compared to the average retailer they still offer some scope for the diversified investor, particularly as too many professional fund managers remain convinced the sector is the devil incarnate. There is certainly high competition but there is also a bit of inflation, a bit of growth and lots of learning from mistakes in the past. If you hold one of the three big UK listed ones I think you hold on here with recovering earnings, compressing multiples, cash flow generation helping to push debt down and a little bit of dividend income. It is not going to be an epic year but they will add a bit to your portfolio value in 2018 even from here in my view.

And if you go into the stores you are much more likely to get a smile from one of the supermarket staff members too. Hope that doesn't freak you out too much!


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