Morrisons braced for profits fall

One of the UK’s big four supermarket chains will be in the spotlight next week as attention turns to the state of the under-pressure retail sector.

In a market dominated by special offers and price matching guarantees, half-year results from Morrisons on Thursday are expected to show evidence of a squeeze on the UK’s fourth biggest grocery chain.

The Bradford-based firm, which has 455 stores in the UK, has been up against a wounded Tesco looking to bounce back after its first profits warning in 20 years, while Asda has been treading on its toes with the help of recently-acquired Netto stores. German discounters Aldi and Lidl have also expanded into new locations, tempting Morrisons’ value conscious customers.

The challenging climate has been reflected in Morrisons’ shares, which have fallen 12% this year, wiping some £900 million from its market value. With pressure coming from all sides, the City expects profits for the six months to July 31 to fall 2% to £434 million.

The latest trade data from Kantar Worldpanel shows that Morrisons continued to lose out to rivals in the 12 weeks to August 5. Its overall sales rose 1.8%, giving it a market share of 11.7%, down from 11.9% a year ago.

Shore Capital analyst Clive Black predicts half-year profits of £422 million, which is an even bigger fall than most in the City expect.

Meanwhile, the UK’s economic woes will dent profits at one of the UK’s biggest rail and bus operators on Thursday. Go-Ahead Group, which runs Southern, Southeastern and London Midland rail services as well as 3,900 buses carrying 1.7 million passengers a day, is expected to report a 4% fall in operating profits to £110.5 million in the year to June 30.

The fall in profits will be caused by weaker trading in its rail division, which accounts for nearly 30% of all UK journeys, as passenger growth has been slowed by the UK’s double-dip recession.

The Newcastle-based group’s rail arm benefited from average regulated fare rises of 6% at the start of this year but its growth has disappointed the City.

Go-Ahead has warned its rail operations will continue to be affected by the weak economy next year, while it is also facing £6 million of bid costs during a busy period for the re-letting of franchises. However, its bus business has put in a resilient performance, with passenger journey growth of 3% over the year as stronger demand from fare-paying passengers is offset by a weaker performance in concessionary fares.

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