CAPE TOWN – Morrisons continues good progress with like for like sales growth still at a healthy clip but it’s being punished for another relatively weak performance from the core retail arm, although wholesale continues to do very well.
Shares skidded 2 percent on the open and are down roughly 15 percent since the start of November.
This was a fourth consecutive quarter of LFL sales growth over Christmas period and continues a very strong run over the last three years.
LFL ex fuel improved 3.6 percent with the bulk of this coming from the Wholesale arm. As previously argued there is a lot of potential yet from this division to drive earnings growth. As noted in September, a total of £1 billion (R18bn) of annualised sales is expected from wholesale but this guidance may be exceeded in due course.
Retail added just 0.6 of a percentage point – this is why the stock is being punished. Retail contribution to LFL was 1.8 percent in the first quarter, 2.5 percent in the second quarter (the blowout summer quarter) and just 1.3 percent in the third quarter.
A knock to guidance has hit the shares hard – down 17 percent in early trade – but revenue growth remains solid. It's looks to have been a case of shifting stock at any price.
Footasylum revenue growth was strong but margins took a big hit from discounting, which was a lot heavier than expected.
Gross margin declines mean earnings are set to come in at the lower end of guidance.
Revenue growth overall suggests a healthy trajectory for the business, albeit with short term margin pressure a weight to profit growth. Online sales jumped 28 percent for the 18 weeks to the end of December store sales rose 5 percent – good against the well-advertised high street backdrop- but helped by five new openings and three upsizes.
Joules continues to defy the general high street gloom. The retailer enjoyed 11.7 percent revenue growth over the Christmas period. Notably online now accounts for half of all sales. In December the company said first half profits would beat expectations and it looks like the company is still on course to do that. Colourful wellies are in.
BUSINESS REPORT ONLINE