The supermarket crunch has been hitting Wm Morrison (LSE: MRW) (NASDAQOTH: MRWSY.US) especially hard, with its share price down 40% over the past 12 months to 173p.
The whole sector has been hit by the success of Lidl and Aldi, but Morrison’s woefully late entry into the online groceries market has taken its toll — Tesco has already snapped up 45% of the online market. And Morrison’s laggardly move into smaller convenience stores really has not helped, either.
So, what should we expect from first-half results, due on Thursday 11 September?
Avert our eyes?
Well, it’s not going to be pretty. Analysts are already forecasting a fall of more than 50% in earnings per share (EPS) for the full year to January 2015, after a modest fall last year.
And at Q1 time, Morrison confirmed that “the market has continued to be competitive throughout the period“, with sales excluding fuel down 4.3% and like-for-like sales down 7.1%.
The company reiterated its plans from March to make savings of £1bn over three years — although I have to confess that whenever I hear things like that I wonder why such savings weren’t already being made in advance of things turning bad.
We also heard that in May the company had permanently cut prices on more than 1,200 products — and it can take a few quarters for the full effects of price deflation to work their way through to the bottom line.
Slash the cash?
The big question, of course, is whether Morrison will cut its dividend next week.
If it doesn’t, and it sticks to last year’s total of 13p per share, we’ll be looking at a yield of 7.5% on the current share price of 174p. Now, that won’t be covered by earnings — although if 2016 forecasts come to pass we’ll see cover getting back close to 1.3 times by then. And Morrison could cover the dividend shortfall for one year this year.
But Tesco has already slashed its first-half dividend by 75% to free up cash for its recovery programme, which is sure to include even more price-cutting. And Morrison hasn’t even reached Tesco’s starting point yet, being so badly behind in those two key areas.
Just do it!
No, Morrison desperately needs to retain cash, and I think it would be a big mistake to try to hang on to those high dividends this year.
But we’ll see, next Thursday.
