Wm Morrison dashed hopes that its profits would recover this year as it unveiled poor trading figures yesterday and launched its search for a new chief executive.
The group failed to explain a collapse in profits that will see it fall into the red this year for the first time in its 106-year history.
Five months after admitting it had no handle on its finances, Morrisons said underlying pre-tax profits would be at the lower end of its estimated £50m to £150m range. It also said it would be six months before it could reveal how it intended to tackle its spiralling cost base.
An exceptional charge of £119m meant it reported an interim loss before tax of £73.7m for the 25 weeks to 24 July, against a £121.6m profit the previous year. Its operating margin before the exceptional costs sunk to 0.9 per cent from 3 per cent a year ago.
Sir Ken Morrison, the founder and chairman who celebrated his 74th birthday yesterday, said he intended to "stay around for another two to three years" to see out the company's attempt to salvage its £3bn takeover of Safeway. It took another clash with his deputy chairman, David Jones, for Sir Ken to announce that the group was looking for someone to replace Bob Stott as chief executive.
Sir Ken said he would rather conduct the search himself than employ a headhunter, adding: "We would look at people we are familiar with." He said he was "overseeing" the process to name his own successor, and that it was "hard to tell" whether Paul Manduca, the company's most recent non-executive recruit, was a shoo-in for the post.
Mr Stott said the group was disappointed by its poor performance but remained characteristically upbeat, adding: "In two years' time we firmly believe we will give stakeholders solid earnings growth that can be relied upon year after year. In the next year we will have an absolutely sold profit base on which to build."
Analysts were less convinced. Philip Dorgan, at Panmure Gordon, said the statement was "in effect another profits warning, with much of the usual bullishness squeezed out of the statement by the deterioration in current trade".
The retail team at Citigroup wrote: "While the conversions appear to be trading reasonably, the core Morrisons estate is struggling. Moreover, the company remains unable to fully map out its path to future profitability and therefore we see few causes for encouragement."
Underlying sales at the core Morrisons estate fell 5.1 per cent excluding fuel during the past 12 weeks - the worst performance in the industry. Across the group, sales rose 1.7 per cent during the 12-week period on the same basis, helped by an 11 per cent rise at converted Safeway stores. In the past 37 weeks, like-for-like sales at the group excluding fuel were 2.3 per cent higher.
The core estate is still suffering from tougher competition in the 52 towns where competition authorities forced it to sell store and cannibalisation from the newly converted Safeway sites. Richard Pennycook, the finance director who started work three weeks ago, said underlying sales would start to rise early next year in the core estate.
Mr Pennycook will spend the next six months working out how the group can slash its bill for extra staff and distribution costs. It expects to boost its gross margin by securing better supply deals and increasing the proportion of its own-label ranges.
More job cuts are expected when the former Safeway HQ at Hayes in west London is sold and all head office staff are gathered under one roof in Bradford by next Easter. The group is cutting one-quarter of its 800 IT and finance posts, while seeking fresh talent to help its struggling finance department get to grips with new systems.
To try to spell out why pre-exceptional operating profits fell from £169m last year to £50.7m during this period, Mr Pennycook said changes to Safeway's old accounting practices had cost the group £50m, while additional manufacturing and distribution costs had soaked up £51m. Higher oil prices and energy bills cost £24m, pensions £19m and it cost £24m to sell all the stores it has divested.Reuse content