Profit Falls At Morrisons, But Bidding War Overshadows H1 Results
British supermarket group Morrisons, at the centre of a bid battle between two US private equity firms, has reported a 37.1% fall in first-half profit, with the retailer citing high COVID-19 costs and lost profit from its cafés, fuel and food-to-go operations.
The group reported a profit before tax and exceptional items of £105 million (€122.4 million) in the six months to August 1, compared to £167 million (€194.6 million) in the same period last year.
Morrisons said direct COVID-19 costs were £41 million, while £80 million of profit was lost in cafés, fuel and food-to-go areas because of the pandemic.
In its results statement, it said total revenue including fuel was up 3.7% to £9.05 billion (€10.5 billion), with like-for-like sales, excluding fuel and VAT sales tax down 0.3%.
Sales were down 3.7% in the second quarter, having risen 2.7% in the first quarter.
"Across the business, the whole Morrisons team has shown commendable resilience facing into a variety of continuing challenges during the first half, including the ongoing pandemic, disruption at some of our partner suppliers, and the impact on our supply chain of HGV driver shortages," commented Andrew Higginson, chairman.
"As we approach our busiest time of year, I'm confident the team will continue to rise to all challenges and keep up all the good work to improve the shopping trip for customers."
Morrisons maintained its profit guidance for the full 2021-20 year - profit before tax and exceptionals including business rates paid to be higher than the £431 million made in 2020-21 excluding £230 million of waived rates relief.
It said that it was planning a ramp up of its convenience store estate – in partnership with McColl's, it now expects to convert 350 McColl's stores to Morrisons Daily by the end of November 2022, up from the original target of 300 by end-2023.
As analyst Ross Hindle of Third Bridge commented, this particular earnings announcement is a "strange one" for the group, because on this occasion, the numbers reported are largely immaterial.
"Everyone is distracted by a potential deal for which continues to drive the share price," he said. "Overall, our experts believe the recent interest in Morrisons and Sainsburys will benefit other stable incumbents in the short term, such as Tesco and the discounters. As seen with past acquisitions, the process can distract management teams from executing on their core priorities, leaving the door open for others to capitalise."
"Looking ahead, the UK Grocery sector faces continued COVID-19 challenges as well as sustained supply chain cost increases and labour pressure. Enough to keep any management team busy without navigating a take-over."