Wm Morrison Supermarkets (LSE: MRW) has lagged behind its FTSE 100 competitors, Tesco and J Sainsbury, in getting its online shopping launched and in opening up multi-format stores — and when the price wars started, that didn’t leave it in a very good position.
Its share price remained buoyant longer than Tesco’s after the latter’s dreadful 2011 Christmas season, but since September 2013 it’s down 40% to 182p, after the sector malaise caught up with it and forecasts were slashed. Last year’s poor Christmas trading didn’t help, with like-for-like sales down 5.6% in the six weeks to 5 January excluding fuel (down 7.1% including fuel), as the company belatedly recognised “the accelerating importance of the online and convenience channels“.
Earnings down 50%!
Since then we’ve seen EPS forecasts slashed, and there’s now a 50% drop forecast to just 12.6p per share, but will this year’s festive season help turn the tide? Morrisons is due to spill the beans on Tuesday 13 January, and all the signs so far suggest it’s been the best retail Christmas for some years.
Some forecasts suggest annual retail volumes will reach a record of more than £340bn, but that has come at the expense of lower margins with more shops than ever having started this year’s sales ahead of Christmas, so it’s mixed news on the profitability front.
Morrisons could do with a decent final quarter, after reporting a 6.3% like-for-like sales fall (down 8% including fuel) in its third quarter to 2 November, but there doesn’t seem to be any expectation of a quick recovery just yet after the company told us that “it will take time for our initiatives to fully benefit our sales performance“.
Having said that, year-end forecasts for Morrisons have been beefed up a little of late, with predicted EPS up from 12.4p a month ago. The shares are still on a P/E of over 14, but with an 11% EPS recovery indicated for the year ending January 2016, that would drop to 13.
Big dividends?
The dividend picture is unusual, with Morrisons apparently sticking to its plan to offer a yield of 6.9% this year, which would equal earnings — and a drop next year would still yield 6% while being covered only 1.3 times. Whether that’s a wise policy remains to be seen, and Christmas and the next two quarters could prove crucial for those wanting the income.
