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Stock Watch

Morrisons share price likely to dip on earnings fall

CMC Markets

The Morrisons share price is likely to come under pressure today after first half pre-tax profit fell by 25.3% to £148 million. 

Pandemic-related net costs were £62 million. Expenses surged by £155 million, but that was partially offset by saving £93 million with respect to business rates. It has been common for companies that continued operating amid the health crisis to incur higher costs. Some traders will be wondering if Morrisons can’t post a rise in profit when a pandemic has driven up demand, when will they register a rise in earnings?

In the six-month period, group like-for-like (LFL) sales excluding fuel and vat increased by 8.7%, while the bulk for that growth came from the second quarter as sales rose by 12.3%. First-half total revenue slipped by 1.1% to £8.7 billion as fuel demand fell, although there are signs of a recovery as people feel more comfortable to travel again.

The interim dividend is 2.04p, up 5.7%. Still no decision has been made with regards to the special dividend - in light of the fall in profit, it probably won’t be anytime soon.

Morrisons share price volatility

Morrisons' share price saw a jump in volatility in March, at the start of the lockdown. It initially sold off as the wider sentiment in the markets was dreadful, but then there was a rebound as the group was allowed to remain open amid the pandemic, as an essential service. There was a surge in demand for food items as the public stocked-up on goods. Traders cottoned-on that supermarkets would actually benefit from the health emergency, and that’s why the Morrisons share price has been pushing higher in the last few months.

In May, the company revealed well-received first quarter numbers. LFL sales excluding fuel in the 14-week period jumped by 5.7%. In weeks 12 through 14 the company saw sales jump by 10.8%. While many firms in the retail sector suffered greatly as a result of the pandemic, Morrisons announced that it was hiring 25,000 people – the jobs will be created across e-commerce, its click-and-collect service and the supply chain.

Morrisons expands digitial trend

The pivot away from traditional in-store shopping has been on the rise. Morrisons has struck up a partnership with Deliveroo – goods from 130 Morrisons shops can be delivered in as little as 30 minutes. The supermarket group offers a click-and-collect service at more than 270 stores. The pandemic has really accelerated the use of technology in the sector, and Morrisons are keeping up with the trend.

According to Kantar Research, Morrisons was the top performer of the ‘big four’ supermarkets in the 12-week period until mid-July, as sales jumped by 17.4%. Asda was the underperformer of the pack, with a sales rise of 11%. Ocado Group had a stellar run as sales surged by 45%. The fact that the online-only supermarket hammered the traditional players highlights the demand for online shopping.

Morrisons share price has been pushing higher since March, and if the broader bullish run continues, it might target the 210p zone.  


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