In the 10 weeks to 7 January, the FTSE 100 retailer saw 2.8% higher group like-for-like (LFL) sales, excluding fuel. “Sales were especially strong” over the Christmas and New Year period, the firm noted, growing 3.7% on a LFL basis, with retail up 2.8% and wholesale activities up 0.9%.
Shares opened 4.5% higher at £2.37, their highest point in nearly three months.
LFL transactions are up 2.3% year-on-year, evidence that “more and more customers are coming to Morrisons”, the firm said in its update, and that management’s efforts to improve the shopping experience are bearing fruit.
Morrisons has also made a more concerted effort to ramp up its online game and wholesale division, entering into a partnership with convenience store McColl’s.
The firm said that online sales have risen more than 10%, with its “Food to Order” volumes up more than 50% throughout the year.
Wholesale activities accounted for 0.7% of the group’s total sales during the 10 weeks to 7 January, with the retailer receiving an additional leg-up from supplying McColl’s with some tobacco products earlier than initially planned.
Starting from this month, it will supply all 1,650 McColl’s stores with products from its subsidiary Safeway and national brands via a rolling programme, outfitting 25 stores each week.
Though the Share Centre’s Helal Miah said Morrisons’ update was an “encouraging set of results”, he noted that pressure still remains from the German discounters.
“The likes of Morrisons and its peers have had to execute drastic changes in recent years to fend off the likes of the German discounters and lately the trading updates from them have been a little more encouraging,” said Miah.
“However, this morning’s release from Kantar on the grocery chain’s market share reveals that the discounters are continuing to steal market share, with Morrison’s share dropping from 10.9% to 10.7% over a year.”
Stark contrast
Morrisons’ cheery update coincided with some sobering figures from the British Retail Consortium (BRC), highlighting the diverging fortunes of food and non-food retailers in the UK.
Although like-for-like retail sales rose 0.6% in December compared with the 1% rise a year ago, non-food item sales suffered their deepest decline since the financial crisis.
It was an even bleaker picture for in-store sales of non-food items, which fell 3.7% and 4.4% on a LFL basis over the three months to December 2017. On a 12-month view, sales in this category were down 2.2%.
Food sales fared much better over the period, by contrast, growing 2.6% on a LFL basis and 4.2% on a total basis, the highest since June and comfortably above the 12-month average of 3.4%.
“There was both light and dark in this year’s Christmas trading period,” said Helen Dickinson, chief executive of the BRC. “Growth in spending was in line with the, albeit modest, average for the year.
“However, the divergence between growth in sales of food and non-food has never been so stark.”
“With inflation outpacing income growth, shoppers continued to see more of their spending power absorbed by essential items, including food, leaving less left over for buying Christmas gifts.”
Fall out
Laith Khalaf, senior analyst at Hargreaves Lansdown, agreed that the BRC’s figures point to a “bleak midwinter for general retailers on the UK high street” and tougher times ahead.
“There will be some winners and losers within the general retail space, but the overall pie is shrinking,” he said.
“That’s a tough environment in any industry, let alone one which is undergoing the upheaval of a digital revolution, not to mention the additional costs arising from the National Living Wage and pension auto-enrolment.”
The December stats from the BRC also revealed the growing importance of promotional activity for traditional retailers where timing is everything.
The retailers who succeeded in this challenging environment “got both their discounting strategy and omni-channel offerings right,” Dickinson continued.
“Those who could offer and deliver on last minute delivery options did better, boosting online non-food sales more than 15% in the seven days before Christmas, a week when, until now, shoppers would have had to turn to stores to ensure gifts made it under the tree in time.”
“This latest snapshot of the state of the UK consumer” will also likely dissuade the Bank of England from hiking rates anytime soon, added Khalaf.
“The central bank does anticipate better wage growth in the coming year, and a drop off in inflation. If these materialise as expected, it will represent a welcome abatement of economic headwinds in the retail sector, for those left standing.”
