Morrisons' sales growth slows as boost from long, hot summer wears off

Shares in the UKs fourth-largest supermarket chain slumped 5.5% on Tuesday

(REUTERS)

Sales growth slowed at Morrisons as the effect of a long, warm summer and England’s World Cup run wore off.

Shares in the UK's fourth-largest supermarket chain slumped 5.5 per cent on Tuesday as retail sales increased just 1.3 in the third quarter per cent compared to 2.5 per cent in the previous reporting period..

Morrisons’ wholesale business which sells food to McColl’s convenience stores fared better, with like-for-like sales up 4.3 per cent.

With overall sales up 5.6 per cent, the market's negative reaction is a mark of how much expectations have changed for Morrisons since the implementation of a successful turnaround.

Morrisons has now delivered three successive years of rising like-for-like sales since chief executive David Potts joined in 2015.

The company was slow in moving into the fast-growing convenience sector but is now benefiting from a deal to supply McColl’s and a revival of the Safeway brand.

This quarter Morrisons made a further step towards addressing its other problem - a poor online offering - by launching its More loyalty card app.

However, the company could face large payouts in two court cases: one concerning a leak of 100,000 employees' data and another brought by thousands of shop-floor staff who say they should have been paid the same as warehouse workers.

Laith Khalaf, senior analyst at Hargreaves Lansdown said the summer consumer glut had worn off for Morrisons.

“Sales were behind expectations, with transaction growth in Morrisons supermarkets barely visible, and so the market has taken a red pen to the share price,” he said.

“Sales are still heading in the right direction, but it’s the wholesale business holding growth up.

“Selling goods to the likes of McColl’s newsagents and Amazon is lower margin, so doesn’t feed through to the bottom line quite so well, though strategically this business adds another string to the Morrisons bow.

“That’s important given the round of re-invention we have seen in the supermarket sector, with Tesco buying Booker and Sainsbury and Asda looking to tie the knot. The discounters are still applying pressure, particularly at the value end of the market Morrisons trades in, so there’s no time to sit on any laurels.”

Morrisons’ share price was down 5.5 per cent at 240p in morning trading.