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Morrisons Share Price Likely To Dip On Earnings Fall

Published 10/09/2020, 08:15
Updated 03/08/2021, 16:15
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Morrisons (LON:MRW) share price is likely to come under pressure today as the first half pre-tax profit fell by 25.3% to £148 million.

Pandemic-related net costs were £62 million. Expenses surged by £155 million, but that was partially offset by saving £93 million with respect to business rates. It has been common for companies that continued operating amid the health crisis to incur higher costs. Some traders will be wondering if Morrisons can’t post a rise in profit when a pandemic has driven up demand, when will they register a rise in earnings.

In the six month period group like-for-like (LFL) sales excluding fuel and vat increased by 8.7%, while the bulk for that growth came from the second quarter as sales rose by 12.3%. First half total revenue slipped by 1.1% to £8.7 billion as fuel demand fell, although there are signs of a recovery as people feel more comfortable to travel again.

The interim dividend is 2.04p, up 5.7%. Still no decision has been made with regards to the special dividend - in light of the fall in profit, it probably won’t be anytime soon.

Morrisons share price saw a jump in volatility in March, at the start of the lockdown. It initially sold-off as the wider sentiment in the markets was dreadful, but then there was a rebound as the group was allowed to remain open amid the pandemic as it is an essential service. There was a surge in demand for food items has the public stocked-up on goods. Traders cottoned-on that supermarkets would actually benefit from the health emergency and that’s why Morrisons share price has been pushing higher in the last few months.

In May, the company revealed well-received first quarter numbers. LFL sales excluding fuel in the 14 week period jumped by 5.7%. In weeks 12 through 14 the company saw sales jump by 10.8%. While many firms in the retail sector suffered greatly as a result of the pandemic, Morrisons announced that it was hiring 25,000 people – the jobs will be created across the e-commerce, its click and collect service and the supply chain.

The pivot away from traditional in-store shopping has been on the rise. Morrisons has struck up a partnership with Deliveroo – goods from 130 Morrisons shops can be delivered in as little as 30 minutes. The supermarket group offers a click and collect service at more than 270 stores. The pandemic has really speed-up the use of technology in the sector, and Morrisons are keeping up with the trend.

According to Kantar Research, Morrisons was the top performer of the ‘big four’ supermarkets in the 12 week period until mid-July, as sales jumped by 17.4%. Asda was the underperformer of the pack because sales rose by 11%. Ocado (LON:OCDO) had a stellar run as sales surged by 45%. The fact that the online-only supermarket hammered the traditional players highlights the demand for online shopping.

Morrisons share price has been pushing higher since March, and if the broader bullish run continues, it might target the 210 zone.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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