Morrisons shares (LON:MRW) are lower today despite the company reporting a strong set of first-half figures. Same-store-sales for the six-month period jumped by 4.9% and second-quarter sales jumped by 6.3% - a nine year high. Stripping out one-off adjustments, profit increased by 9% to £193 million. When you factor in debt restructuring costs and charges relating to stock provisions, earnings fell by 29% to £142 million.
The debt restructuring charges will benefit the company in the long-run as it will reduce interest payments, and therefore give the group more breathing space. The supermarket cited the warm weather, England’s performance in the World Cup and the Royal Wedding for the robust figures. The company is still committed to ‘cost-saving and productivity opportunities’. The interim dividend was increased by 11.4% to 1.85p, and a special dividend of 2p was declared too, and this underlines how well the firm is performing.
The supermarket had a solid start to the year as the group confirmed that retail sales and wholesales jumped by 1.8% each in the first-quarter, which was the tenth consecutive quarter of sales growth. The company declared that it is now ‘open for business as a wholesaler’ as it has started supplying McColl’s.
The diversification is essential given the major changes going on in the UK supermarket sector. Sainsbury's (LON:SBRY) and Asda are awaiting confirmation of their merger, and the new group will overtake Tesco (LON:TSCO) as the largest supermarket in the country. A few years ago, Sainsbury’s acquired Argos as a way of branching out into a different aspect of the wider retail sector.
Morrisons have an agreement with Amazon (NASDAQ:AMZN) to deliver groceries as a part of the Amazon Prime service and this could be very useful to the UK supermarket as Amazon have a track record of disrupting whatever industries they enter. The rise of e-commerce is unstoppable and the high street is in decline, which is part of the reason Morrisons has closed stores in recent years and halted plans to expand the number of convenience shops.
According to Kantar Worldpanel, Morrisons saw sales rise by 2.7% in the 12 weeks to 12 August - the fastest growth rate among the big four supermarkets. Asda were in second place with 2.6% sales growth, while Tesco and Sainsbury’s posted 1.8% and 1.2% respectively. When you take into account that Morrisons declared a special dividend in March, it is fair to say that their turnaround is impressive.
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