WM Morrison Supermarkets Plc to Cut Prices Further in Order to Improve Its Market Share

FTSE 100 listed Retailer, WM Morrison Supermarkets Plc has reduced the prices of everyday groceries to boost sales volume. The latest media reports suggest that a huge chunk of the population has switched to discounters Lidl and Aldi. Morrison is far behind its counterparts such as Tesco, J Sainsbury and others. The Yorkshire based retailer has witnessed rout in the share market as well; its shares have fallen around 21 per cent in the past one year. Moreover, the company’s market share dipped to 10.2 per cent, mostly in favour of the discounters.

The company made an average reduction in prices of 15 per cent on the fast-selling and popular items, to encourage customer buying and more cuts are likely to follow in the upcoming weeks to sustain in the fierce competition of supermarkets.

As per the Christmas trading update, the company has been underperforming. During the period, trading conditions remained difficult, and the last year’s the customer uncertainty lingered. For the first 22 weeks of H2 to 5 January, the company’s like-for-like sales (excluding fuel) were down by 1.7 per cent. The company’s total sales (excluding fuel) were down by 1.8 per cent. For Q3 (the period 5 August to 3 November), the company’s total sales were down by 1.3 per cent excluding fuel.

Business overview: WM Morrison Supermarkets Plc

WM Morrison Supermarkets Plc (LON:MRW) is a Yorkshire, the United Kingdom based consumer services company, that is engaged in the operation of large-scale retail supermarkets under the name of the Morrisons brand. The company has both brick and mortar stores as well as online presence to keep pace with the up and coming trends in the retail consumer services sector. Morrisons brand’s product offerings include all kinds of groceries, such as Fresh and Frozen food, Drinks, Alcoholic drinks and other beverages, personal care offering such as toiletries and beauty care items as well as Kitchen & home appliances and home décor products. This range of products makes the company a market leader in the retail supermarkets business in the United Kingdom. The company also has manufacturing facilities through which they source the fresh food that they sell, which gives them control over provenance and quality. The company currently has a high clientele visiting the brick and mortar stores each week while they service millions of households in the United Kingdom through its website service.

Financial highlights for H1 FY20 period ended 4^th August 2019

Morrison continued to invest in improving the cost efficiencies to provide competitive pricing in the market and enhancing the customers shopping experience. The company brought down the pricing of list items significantly in the first half with an increased investment to boost the sales volume.

The company’s Total revenue was up by merely 0.4 per cent year on year to £8.83 billion in the first half of the fiscal year 2020. The company’s fuel sales stood at £1.9 billion, up by 0.4 per cent in year-on-year sales (excluding VAT and the impact of new store openings and closures in the current or previous financial year). The company’s Profit before tax and exceptionals was up by 5.3 per cent to £198 million in the first half of the fiscal year 2020 as compared to £188 million in the first half of the fiscal year 2019. Post incurring £52 million of net exceptional costs, the company’s Statutory profit before tax after exceptionals was up by 48.5 per cent to £202m during the period, in comparison to £136 million in the first half of the fiscal year 2019.

The company’s Operating profit before exceptionals was up 2.4 per cent to £252 million in the first half of the fiscal year 2020 as against £246 million in the first half of the fiscal year 2019. The company’s EBITDA margin before exceptionals was up by 20 basis points to 5.8 per cent during the period. The company managed to reduce its Net finance costs before exceptionals to £54 million in the first half of the fiscal year 2020 as against £59 million in the first half of the fiscal year 2019.

The company’s EPS before exceptionals was up 4.1 per cent to 6.38 pence in the first half of the fiscal year 2020 as against 6.13 pence in the first half of the fiscal year 2019. The company’s Cash capital expenditure stood at £212 million in the first half of the fiscal year 2020 as against £185 million in the first half of the fiscal year 2019. The free cash flow of the company was up by £30 million to £211 million during the period from £181 million in the first half of the fiscal year 2019. On a pre-IFRS 16 basis, Morrison’s net debt was down by £22 million to £975 million in the first half of the fiscal year 2020.

WM Morrison Supermarkets-Stock price performance

Daily Chart as on 13-March-20, before the market closed (Source: Thomson Reuters)

On 13th March 2020, while writing at 09:45 AM GMT, Morrison’s shares were clocking a current market price of GBX 174.80 per share, which surged by 6.04 per cent as compared to the previous day closing price level. The company’s market capitalisation was at £3.96 billion at the time of writing.

On 04th April 2019, the shares of WM Morrison Supermarkets have touched a new 52-week high of GBX 224.73 and reached the lowest price level of GBX 160 on 28th February 2020 in the last 52 weeks. The company’s shares were trading at 22.22 per cent lower from the 52-week high price mark and 9.25 per cent higher than the 52-week low price mark at the current trading level as can be seen in the price chart.

The volatility of the company’s stock was 51 per cent lower as compared with the index taken as the benchmark, as the beta of the company’s stock was recorded at 0.64 with a gross dividend yield of 3.57 per cent.

The shares of the company have delivered a negative return of 10.65 per cent in the last quarter. From the start of the year to till date, the company’s stock plunged by 17.49 per cent. Since the last month, the company’s stock has given investors 3.90 per cent of a negative return.Â