Can Wm. Morrison Supermarkets plc Make £1 Billion Profit?

Will Wm. Morrison Supermarkets plc (LON: MRW) be able to drive profits higher?

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Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to push profits up to levels not seen in the last few years.

Today I’m looking at Wm. Morrison Supermarkets plc (LSE: MRW) (NASDAQOTH: MRWSY.US) to ascertain if it can make £1bn in profit. 

Have we been here before?

A great place to start assessing whether or not Morrisons can make £1bn in profit is to look at the company’s historic performance. Unfortunately, Morrisons has never been able to make £1bn in profit and it would appear that the company is not likely to do so in the near future.

Indeed, Morrisons’ best year was 2012 when the company reported a net profit of just under £700m. However, with the company’s like-for-like sales slumping last year, Morrisons net profit fell 7% to £650m for 2013.

Moreover, it would appear that things are only going to get worse for Morrisons as peer Tesco recently announced a multi-million pound plan to try and entice customers back to its stores. In addition, discount retailers such as Aldi and Lidl continue to grab market share, leaving Morrisons suck in the middle, trying to compete with much larger, more aggressive peers. 

But what about the future?

With competition in the grocery sector increasing, already struggling Morrisons is going to have to work extra hard tempt customers back in to the company’s stores. Unfortunately, this may mean that the company will have to aggressively discount its products, which usually leads to rising sales but at the expense of profits.

Still, Morrisons continues to expand its presence in the UK’s retail market in an attempt to reach more customers, especially in the South of England where the company is underrepresented.

Additionally, Morrisons recently launched its online delivery service and management is planning on doubling the number of Morrisons-branded convince stores over the next year or so. Nevertheless, with like-for-like sales slumping more than 5% in the six weeks to 5 January, the company is going to have to do more than open more stores to boost profits.

It would appear that City analysts also agree with this view. Current City forecasts expect Morrisons to report a pre-tax profit of £731m for 2014, more than 10% lower than the figure of £880m reported for 2013. What’s more, current projections predict that Morrisons’ pre-tax profits will fall a further 6% to £684m for 2015. 

Foolish summary

So overall, as Morrisons is struggling to drive sales growth and compete in the UK’s vicious retail sector, I feel that the company cannot make £1bn profit. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert owns shares in Wm. Morrison Supermarkets. The Motley Fool has recommended shares in Wm. Morrison Supermarkets.

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