Morrisons equipped to outperform in 2019 after a third successive year of strong growth, says GlobalData

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Following today’s release of Morrisons FY figures for 2018/19, Thomas Brereton, retail analyst at GlobalData, a leading data and analytics company, comments: ‘‘Dave Potts’ “Fix, Rebuild, Grow” plan continued to demonstrate its worthiness this morning in Morrisons’ full year results, with a 4.8% rise in Group LFL sales driving an impressive 3.2% growth in ex. fuel Group sales to £14.0bn. As a result, Morrisons also announced a special dividend of 4p per share on top of its normal dividend, taking the total up 25% to 12.6p per share. From revenue growth to underlying operating profit to a whopping 143.1% growth in its wholesale division, it seems Morrisons is now firmly in the third “Grow” stage of its turnaround strategy.

“Morrisons is right in its statement that UK food retail has been incredibly competitive over 2018, with a steep decline in food inflation throughout the year (3.5% in Q1 to 0.3% in Q4) requiring all the major grocers to remain dynamic with respect to price competitiveness. But the headline growth figures have masked a slightly disappointing Christmas for Morrisons, with falling retail sales in the final quarter contributing to a docile 0.1% increase in overall retail sales for the year; in comparison, market leader Tesco saw a 2.2% LFL increase over the Christmas period, showing that Morrisons still has work to do to truly stand out from the rest of the Big Four. However, it has preserved a stable Group operating margin (2.6% for last three years), overhauled stores (with 60 more “Fresh Look” stores unveiled throughout the year), and cemented its position as a wholesaler through the expansion of its partnerships with McColl’s and AmazonFresh.

“With Brexit still looming over the retail sector in 2019, talks of supply shortages and impending lack of availability across UK grocery are rife. But Morrisons is better placed to withstand such pressures than its Big Four rivals, having successfully secured Authorised Economic Operator status during the year, on top on expanding its dependence on local suppliers (up 27% during 2018, and doubled over the past three years); in fact, in light of this significantly stronger foothold, it would be understandable if some of its management secretly have their fingers crossed for a no-deal situation.

“Despite an impressive performance this year (albeit largely driven by its wholesale division), there are areas Morrisons should look to improve within its core retail sector. Online grocery presents an avenue that Morrisons can explore, with its estimated 4.1% penetration well below the 9.1% overall online penetration across the whole grocery market. And although this is currently being addressed (having expanded to over 75% of UK households during the year, and starting a delivery service trial to Centre Parcs customers), the forecast 48.9% growth in the online channel over 2019-2024 highlights how vital this channel is becoming for successful retailers.”