William Morrison Supermarkets today reported slowing sales growth in Q1 and said it remains cautious on the economic and consumer environment.
Morrison has put UK rivals Tesco, J Sainsbury and Asda into the shade with its sales performance in the past two years. However, falling commodity prices have left UK supermarket chains fighting on two fronts. Food inflation boosts the chains’ take at the tills and its virtual elimination has left chains having to sell more goods.
Sales at stores open at least a year, excluding fuel and value added tax, rose 0.8% in the 13 weeks to May 2 from a year earlier, or 5.2% including fuel. This compares with growth of 4.6% in the last quarter and 8.2% in the first quarter of fiscal 2009.
Finance Director Richard Pennycook said the retailer remains a "nose ahead" of its rivals, but admitted that the year to come will be challenging.
"We are still going to be ahead of the pack. (But there is) very significant slowing in the market."
"If we felt we weren't a notch ahead in the market we would be anxious about that. We are up against the toughest like-for-likes in the industry," he said. "We are no more than satisfied. In a better market, these sort of numbers would not be satisfactory."
Pennycook said it could be assumed that inflation would pick up in the months ahead, but that the company takes a prudent view. "We don't see much inflation around in 2010. This current flat picture is what we should plan for in 2010."
As well as flat inflation, the retail industry fears that spending and confidence will come under pressure from forecasted post-general election tax hikes, public spending cuts and unemployment as the new government reins in borrowing.
"2010 will give us a lot of headwinds," Pennycook said. He added that the retailer remains focused on value and low prices and keeps its outlook unchanged, as British shoppers emerge from a deep recession.
Morrison's new Chief Executive Dalton Philips joined the company on May 1 and will give his initial thoughts on group strategy alongside interim results in September, Pennycook said.
Shares in Morrison, which have fallen 8% in the past four weeks amid the general concerns, slipped on the news to 274 pence, in a higher London market, valuing the company at £7.27 billion.
"The like-for-like sales growth is frankly disappointing. The company is underperforming," Shore Capital analyst Clive Black said. Black noted that the stellar performance of rival Tesco Plc is "starting to hurt the whole industry."
Analysts also see short-term difficulties. Numis Securities analyst Andrew Wade, with a hold rating on the stock, said the present no-inflation environment is likely to curtail the availability of promotions in the coming quarters.
Collins Stewart analyst Greg Lawless added: "If Morrisons...is winning market share, this suggests that the underlying market is barely flat, with perhaps both Asda and possibly Sainsburys in negative territory," .
"There are some big strategic decisions to be taken (internet, loyalty card, non-foods), which may provide a drag on margins and returns in the short-term," he said.
Morrison's market share for the 12 weeks to April 18 was 11.8%, up from 11.4% in the same period last year, according to Kantar Worldpanel data. That compares with 30.5% for Tesco, 16.9% for Asda Group Ltd. and 16.4% for J Sainsbury Plc.
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