Retail: Morrisons plunges to £176m annual loss amid write-downs and falling sales
09:29 13 March 2014
Struggling supermarket chain Morrisons posted a bottom-line annual loss of £176million today amid falling sales and one-off costs of £903m.
Britain’s fourth-biggest supermarket fell into the red in the year to February 2 after a profit of £879m the year before.
The £903m charges included write-downs on the value of its stores and its 2011 acquisition of online children’s wear retailer Kiddicare, which it now plans to sell in the wake of a poor financial performance. Like-for-like sales at Morrisons were also down 2.8% for the year.
The grocer, which belatedly began rolling out an online operation earlier this year, also warned that the “challenging consumer and market environment” would persist into the current year.
Chief executive Dalton Philips said it was investing £1billion over the next three years to improve value and “defend and strengthen our competitive position”.
Mr Philips unveiled an aggressive price-cutting strategy to take on discounters such as Aldi and Lidl, saying: “We are going to lower our prices on a permanent basis.” Larger rivals Tesco and Asda have already signalled the start of a price war.
However, Morrisons’ response, which also includes selling off £1bn worth of property, was not enough to reassure anxious investors
Shares plunged by 10% on opening trading as the losses and a profits warning for the current year spooked the market, with rivals Sainsbury’s and Tesco also falling sharply on fears over the sector prompted by the Morrisons figures.
Underlying profits at Morrisons before exceptional costs for 2013-14 fell 13% to £785m but these are now expected to fall by more than half to a range of £325m to £375m for the current year.
Mr Philips said the grocery sector was facing the biggest structural shift “since the 1950s and the advent of supermarkets” as shoppers turned to discounters to make savings even if they were not struggling.
He said: “The biggest challenge that we face is that there has been a fundamental change in how consumers view discounters.
“They are no longer going to them out of necessity. The perception has changed and there is a new price norm.”
The chief executive said all the major supermarkets were losing out to the discounters but that it had a bigger “overlap” than any of its major rivals.
“The rules have changed and we must change too. It is absolutely critical that we begin winning again in our core supermarkets. To do that we must compete on price.”
However Mr Philips insisted that Morrisons would not turn into a discounter itself, saying its prices would not have to match theirs but to be just low enough that its fresh food and quality offer would look worthwhile.
Instead it would become “a distinctive, lower priced fresh food grocer where you can do your full shop”.
The chief executive defended his record four years after taking over at the supermarket, saying he had faced four major structural challenges.
He said he had addressed three of them: the lack of a web operation; the need to roll out convenience stores; and antiquated IT systems. He was now taking on the burgeoning threat from the discounters.
The store’s price-cutting drive will be funded by savings on procurement, systems and other costs.
Mr Philips said the new online business, which has been operating for eight weeks in a tie-up with Ocado, was already producing market-leading performance for on-time deliveries and a low rate of substitutions.
The annual results showed that a £379m part of its exceptional costs were write-downs on the value of existing stores, with £319m relating to its store pipeline.
Mr Philips said that after 2015-16 no new supermarkets would be built other than in exceptional circumstances though its network of convenience stores would continue to be developed.