Supermarket group Morrisons is expected to announce earnings before interest and tax (EBIT) of £448 million when it reveals half-year trading figures for the 2011/12 fiscal year later this week, according to retail industry analysts.
UK investment banking group Shore Capital said today that Thursday’s financial statement from the Bradford-based grocer comes as the general market consensus expects EBIT of much closer to £460 million.
The firm’s forecast for Morrisons’ pre-tax profits for the same period stands at £424 million, and there is an expectation that the second half of the year will see substantial investment in new superstores after a lack of store opening activity in H1 aside from converted Netto outlets.
Shore Capital does, however, expect Morrisons to outperform the other ‘big four’ supermarkets, Tesco, Asda and Sainsbury’s, in terms of like-for-like (LFL) sales growth, with this predicted to be reported at 1.8 per cent.
It is a busy five days of retail trading announcements, with dominant sports equipment specialist Sports Direct, Currys owner Dixons Retail and beleaguered HMV Group all updating the markets, but Morrisons’ figures are being viewed as especially important in light of recent developments in the grocery sector.
Kantar Worldpanel data shows that the grocery market is currently growing below the rate of the price inflation in the sector, and the major supermarkets are coming under increasing competition from discount retailers such as Aldi and premium niche players like Waitrose.
Retail Analyst at Shore Capital Clive Black said: “We sense that it is widely understood that trading conditions have been especially subdued in 2011 for most of the superstore operators with real incomes falling, consumer confidence low, petrol eating into household budgets and many households seeking to deleverage; so impacting sales of many non-food lines.
“For many of the superstores such a cluster of factors is especially challenging therefore, albeit Morrisons, with its greater focus on the grocery segment, should be a little more resilient.
“The market has a reasonable grasp for the trading momentum from Morrisons in our view, leading eyes to focus down on the margin and working capital performances.”
Morrisons started 2011 with the acquisition of baby products retailer Kiddicare and has also recently opened its first convenience store, M-Local, as a trial that could potentially lead to more smaller format shops being unveiled in the future.
Speculation surfaced earlier in the summer that the supermarket was eyeing a takeover of some of frozen food retailer Iceland’s stores, which would help bolster its convenience strategy, but Morrisons is yet to substantiate these rumours.
Reflecting on this week’s forthcoming announcement, Black added: “Morrisons has a lot on.
“A new management team has had some time to settle down over the last six months and so we may gain a deeper indication as to the outcome and likely roll-out of a variety of initiatives revealed by CEO Dalton Philips in the spring.”