Morrisons: What Next for the Supermarket Stock?

Morrisons sales are up, and debt levels are down - but the supermarket is in stabilisation and optimisation mode, which is something quite different from a growth strategy

Adam Kindreich, CFA 15 September, 2016 | 2:08PM

No-moat Morrisons supermarkets (MRW) reported half-year results to end July 2016 showing continuing progress in like-for-like sales, which have been positive for the past three quarters, accompanied by significant margin expansion, brought about by stringent cost-saving measures. Net debt levels are also lower than guidance, so overall, the figures confirm that Morrison's turnaround is under way.

Morrisons now expects to be ahead of target in its three-year programme to save £1 billion

The like-for-like sales performance is encouraging, as sales were falling at a 2%-3% pace for several years until they turned positive in the quarter to January 2016. The second quarter to end July 2016 showed like-for-like sales growth excluding petrol of 2.0%, achieved despite continuing price deflation of 2% in the first-half period. The turnaround has been brought about by increased customer footfall, with supermarket transactions up 4.3% year on year in the latest quarter, though this is offset by a 5.0% slump in average basket size.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Morrison (Wm) Supermarkets PLC178.35 GBX-0.17

About Author

Adam Kindreich, CFA  is an equity analyst for Morningstar

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