Morrisons is up ahead of tomorrow’s results

<p>UK food retailer, Morrisons, is currently slightly up ahead of the company’s market update tomorrow (13th March). Profit expectations are already low given the company’s […]</p>

UK food retailer, Morrisons, is currently slightly up ahead of the company’s market update tomorrow (13th March).

Profit expectations are already low given the company’s widely-publicised difficulties

Indeed, low expectations abound based on a variety of reasons, not least of which is the company’s recent profit warning.

Morrisons warned in January that full-year profits would be around the £783m mark (expectations were around the £810m area). That was following dire trading over the Christmas period, which saw like-for-like sales drop 5.6%.

By the way, sales declines for the company have continued post-Christmas – if a recent report by research company, Kantar Worldpanel, is anything to go by.

According to Morrisons at the time, cash-strapped customers, together with a lack of a meaningful online and local convenience stores’ presence, were to blame for tough trading conditions.

The company’s issues are well known

Yes, retailers have met with something of a rough time, driven by fierce competition. While some are, of course, faring better than others, Morrisons is not alone.

Heavyweight Tesco’s current woes were highlighted here very recently and it was said at the time that so-called discount retailers posed a notable challenge as shoppers continue to opt for their cheaper offering.

And yes, given the growing popularity of online grocery shopping, Morrisons’ late arrival to the game can’t have helped.

Indeed, it was only last December that the company launched (deliveries commenced this January) its home delivery service, in partnership with online grocery player, Ocado. That’s in addition to ploughing ahead with its customer loyalty programme as it looks to adequately combat competition.

Additionally, the company embarked on a review of its property portfolio (estimated to be worth around £9bn, and over 90% is freehold). According to Morrisons, that move was in a bid to assess “opportunities to realise value for shareholders” – which could be read as ‘shareholders could be rewarded with proceeds from potential property sales’.

Anticipation centres on a potential cash hand-out to shareholders

Along with traction in tackling the aforementioned concerns highlighted by the company (online, convenience stores), of course.

That said, in the face of declining sales and profits, using property sale proceeds to reduce its debt burden (net debt of around £2.7bn as at November last year), as well as reinvesting to position more competitively, would arguably make more strategic sense.

In other words, handing out the cash would simply be based on a short-term view – any positive response by the market, therefore, would be equally short lived.

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