Future of tesco, morrisons

planteria

well, yes....retailers are certainly finding that buyers from more costly postcodes are overly represented amongst those ordering online. i deal with some companies that supply bulky landscaping products, for example, and they seem to go from St Mawes to The Highlands with very little Birmingham or Manchester in-between.
pricing needs to make sense, for the retailer, regardless of delivery address. overall, and over time, Tesco and the other grocers will get this right. or, alternatively, focus on sales from store.

planteria

breaking news re. Morrisons results...

planteria

"Morrisons sales fall 8.2%"

the story hasn't appeared yet on the BBC.

but it will be interesting to see what happens to the share price today.

planteria

still not on bbc.co.uk:think:

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10815301/Morrisons-sales-worsen-as-customers-head-for-discounters.html

atush

I saw it on BBCTV though?

alanq

planteria wrote: »

"Morrisons sales fall 8.2%"

the story hasn't appeared yet on the BBC.

Both the Telegraph and BBC web sites report 7.1% drop in like for like sales. The 8.2% figure must have come from somewhere else.

http://www.bbc.co.uk/news/business-27322067

Ifts

LFL sales down 7.1% (8.2% inc fuel):

As anticipated the market has continued to be competitive throughout the period. In the 13 weeks to the 4 May 2014, total sales* excluding fuel were down by 4.2% (down 5.6% including fuel) and like for like sales* were down 7.1% (8.2% including fuel).

RNS Number : 5209G - Morrison(Wm.) Supermarkets PLC - 08 May 2014

planteria

the 8.2% was a cut & paste from bbc.co.uk which was on a newsfeed, rather than the actual story. yes, it was on BBC TV but didn't appear on the website for quite a while.

this is what HL had to say:

"HL COMMENT (8 MAY 2014)

First quarter update: The supermarket operator announced a fall in like-for-like or same store sales which exceeded broad analyst expectations. Sales excluding fuel fell by 7.1. Total group sales for the period, again excluding fuel, retreated by 4.2%. The share price declined by over 3% in early morning stockmartket trading. The most recent survey from market research company Kantar saw discounter Aldi's sales growing at a record-high 36.1% year-on-year in the 12 weeks to April 27, taking its market share to a record 4.7%. Lidl's sales rose 20.9%, its highest growth since August 2004, giving it a record 3.5% market share. Aggressive price competition has seen Morrisions suffering hits to both sales and profitability.

Nonetheless, the group is trying to fight back. The Chief Executive noted that "The plans we set out at our results in March are on track. The reaction of our customers to the 1,200 "I'm Cheaper" price cuts we announced last week has been very positive. Although it will take time for their full impact to be felt, we are confident that these meaningful and permanent reductions in our prices will enable our clear points of difference to resonate strongly with consumers." On balance, analyst consensus opinion currently points towards a hold.

Negative Points:
First quarter sales excluding fuel fell by 7.1%. Analysts had forecast a fall of around 5%. Total group sales for the period, again excluding fuel, retreated by 4.2%.
For the full year 2013, the supermarket chain reported a pre-tax loss of £179 million compared with a profit of £879 million from a year earlier. Revenues for the full year ended 2nd February declined by 2% to £17.7 billion. The company was hurt by a one-off £903 million exceptional write-down, due to property and IT costs and a disappointing performance from Kiddicare, its baby products business. The group said it will look to sell Kiddicare in 2014. It also warned that profits for the current year (2014/15) would be less than £375 million, around half the level of last year.
Competition remains fierce in the supermarket space. The discount supermarkets have become a thorn in the side for the bigger players. Convenience, online and the discount channels are seen as the fastest growing sectors of the market.
Consumers have continued to face challenging economic conditions. Many customers have been constrained financially and have had to choose carefully where they shopped.
Unlike some rivals, the group does not enjoy any degree of international diversity.
The grocer has also been slow to recognise the move from big out-of-town stores to local convenience stores.

Positive Points:
In March, management announced plans to realise savings of £1 billion over the coming three years to strengthen its business and reinforce its core customer proposition. In Early May (2014), it announced plans to cut prices permanently on over 1,200 of the products.
Morrisons long awaited online offering - Morrison.com launched in January 2014.
During the quarter, Morrisons opened two core stores from its remaining pipeline as well as a further 11 M local convenience stores. It remains on schedule to meet its target of having up to 200 convenience stores open by the end of the year.
Management noted that "By the year end our online business will reach up to 50% of UK households and, together with convenience, is expected to account for over £500 million of annualised sales."
Morrisons property portfolio has an estimated market value of around £9 billion. Over 90% of its core estate is freehold, a considerably greater proportion than its major competitors (source: Morrison (Wm) full year results 13 March 2014).
In a sign of confidence in Morrisons strategic direction, the Board said it is committed to 5% minimum increase in the dividend for 2014/15 and a progressive and sustainable dividend thereafter."

http://www.hl.co.uk/shares/shares-search-results/m/morrison-wm-supermarkets-ordinary-10p?tab=security_research&utm_source=Silverpop&utm_medium=email&utm_campaign=E00RN&utm_content=Share%20research&theSource=E00RN&Override=1

planteria

from an email from fool:

"It is all too easy to forget Tesco remains an incredible British business that retains a MASSIVE 29% market share

In contrast, second-place ASDA and third-place Sainsbury's both have about 17%. Morrisons has 11%.

So if discounters do really threaten the old guard, I reckon all four big names could be hit...

Though I'm convinced Tesco's size can help it resist the worst of any onslaught.

I mean, Morrisons has already come a cropper.

Slow to move online and open convenience stores, the chain has quickly been thumped by the discounters. Morrisons has even admitted profits will halve this year.

Meanwhile, Sainsbury's – with its thin 3.6% operating margins – looks more at risk of discount pricing pressure than Tesco with its industry-topping 5.0% margins.

(I also see Sainsbury's has just lost is respected boss, Justin King. I wonder if he has seen the discount writing on the wall.)

Whatever, Tesco's massive size gives it enormous negotiating advantages when it comes to buying from suppliers.

And remember, it's market share is still almost 4 times that of Aldi and Lidl's combined.

So I am as sure as I can be that Tesco's fatter margins, greater economies of scale and all-round immense purchasing power put the retailer in a much stronger position to face any price war than the other mainstream supermarkets.

Two economic GREEN SHOOTS that could signal
the better times ahead for Tesco and shareholders

And it's not as if discounters will always have it their own way.

I mean, the recession is not going to last forever.

Indeed, recent government statistics now say annual average wages are advancing in line with inflation – for the first time in six years.

In other words, the public could soon see their disposable income improve just that little bit further in the near future.

What's more, other official figures show the UK economy growing for five consecutive quarters – the longest positive run since the financial crisis erupted.

They're both definite green shoots to me, and ones the cheap headlines have unsurprisingly missed when it comes to Tesco.

I mean, at some point this downturn will finish, the economy will turn and the general public will simply start spending more.

And then I am convinced shoppers will forego saving every last penny by scrambling around the tight aisles and small car parks of Aldi and Lidl…

…for the convenience of a larger, smarter, more convenient – and still value-for-money – Tesco.

Tesco’s vast store network and established distribution system give it a MAJOR ADVANTAGE over Amazon…

Of course, Tesco is preparing for battle on another front – the digital world.

And yet the sensational headlines never mention the supermarket's great advantages over the likes of Amazon…

Advantages that include the 3,000-plus stores scattered across the UK and a highly developed, ready-made logistics and delivery system.

You see, while pure online retailers invest heavily in warehouses to sort, store, distribute and expand…

Some 90% of us Brits are already within a 10-minute drive of a Tesco store, while the company's home-delivery service already offers 1-hour delivery slots to 98% of the country.

In fact, Tesco has had the country covered with 'pick-up spots' and been delivering to homes for almost two decades now.

And these days you can have your Tesco weekly shop brought to your doorstep for just £3 a month.

In a sector where loyalty is scarce, I am absolutely sure the ability to deliver the fastest, the easiest and the cheapest could be a winning characteristic for Tesco investors.

Tesco is also preparing to out-do Amazon in more mundane ways…

Not least expanding its Click and Collect service and building dotcom stores designed solely to fulfil online orders.

In fact, Tesco spent almost £500m last year on technology and logistics to handle the future of retail.

From my studies of the sector, this online investment could very well place Tesco – and its shareholders – in a very strong position in the years to come.

Indeed, it's the type of investment that should easily set Tesco apart from the likes of Sainsbury's Waitrose, Aldi...

And quite possibly Amazon.

With all the headlines about problems here in Britain, it’s so easy to forget mighty Tesco is a truly GLOBAL retailer

I mean, more than half of its stores are now located outside of the UK.

And over the long term, I predict international sales will produce a growing and lucrative chunk of Tesco's profits.

That's because I believe regions where Tesco is most heavily invested overseas – countries such as Thailand, Malaysia and Poland – are set to enjoy an unprecedented boost to their consumer spending power in the coming years.

As such economies develop and their populations become wealthier, Tesco seems ideally positioned to prosper.

Indeed, Tesco earned almost £1bn of profits overseas last year. That compares to around £300m ten years ago.

(And compares to the measly £63m of non-US profits recorded by Amazon during 2013.)

So let me just say this.

If Tesco can maintain its position and margins in money-spinning international markets, I am absolutely convinced the company – and its profits and dividend – will likely look very healthy in the next ten years.

Forget customer blogs, horsemeat burgers and wild comparisons to British Airways… I firmly believe that now is the time for YOU to seize this buying opportunity

I've studied the annual reports, visited the stores and investigated the wider sector.

I've assessed Tesco's 'secret brands', such as its Harris & Hoole coffee shops, its Dobbies garden centres and its Giraffe restaurants...

I've evaluated Tesco's long line of innovations, including the popular Hudl tablet, the growing Blinkbox on-demand service and the surprising potential of Tesco Bank.

And I've fine-tuned my spreadsheets, noted the juicy 5% dividend yield (the highest in ten years)…

…and worked out Tesco's shares could go on to deliver 10% compound annual returns between now and 2021 given the current price being so depressed.

So I've come to this straightforward verdict.

Even though the headlines are sensational…

Even though all the soundbites are bearish…

Even though profits have fallen…

I’m saying LOUD and CLEAR to all smart investors who can look beyond the doom-mongers… BUY TESCO

So that is all very well.

But why trust what I say?

Why trust my advice on Tesco?

Or for that matter, why trust my advice on any other share?

Well, I'm part of a stock-picking team that consists of The Motley Fool's very best investors…

A team that has delivered almost double the market's1 returns in full view of ordinary investors.

And right now, every member of this all-star team is unanimous in their verdict…

You should BUY TESCO."

planteria

and from ii:

"With the FTSE 100 shares in food retailer Morrisons (MRW) hitting a seven-year low, recently down to 190p, is it time to buy?

Last January I examined Morrisons at 260p, noting that like Sainsbury's (SBRY) and Tesco (TSCO) it was in treacherous middle-ground between Aldi and Lidl for value, and Waitrose for premium quality.

I said at the time: "Disappointing Christmas sales are really a reminder of how shares in mid-tier retailers are effectively dead money, hence targets for switching into shares more enterprising and/or with better-defined value... don't reckon on buybacks being a prop."

The shares' downtrend has continued, dipping from 191p to 185p in response to a weak trading update on 8 May, however buyers promptly drove the price up to 200p, currently 196p.

The tussle is due to the fear that mid-tier supermarkets will lose the price war as operators battle to steal customers; versus greed that Morrisons is close to tangible net asset value of 181p a share and a dividend yield of 5-7% (forecasts vary), which ought to provide support.

While current market pricing may be attractive, investors need to bear in mind the risk.

Price wars tend to sweep through supermarkets in waves and it is uncertain who may do what next.

Not only is this liable to compromise dividends but also the stockmarket may see them as high-risk and mark shares lower to prop up the yield - both as compensation for extra risk and to ensure a balance of sellers and buyers.

More positively, such a negative trend will mean a useful buying opportunity if management proves a turnaround.

The big four

In the 13 weeks to 4 May, Morrisons total sales excluding fuel fell by 4.2% while like-for-like sales dropped 7.1%. Lower sales partly reflect the first wave of Morrisons price cuts being introduced on 1,200 products which are expected to halve the group's underlying profit in the current financial year.

The big four grocers - Asda, Morrisons, Sainsbury's and Tesco - are losing market share and the consensus view is that Morrisons price cuts are overdue, likewise is its initiative for online sales.

After just the first wave of price cuts, the chief executive proclaimed "very strong increases" in product categories involved, with volumes up over 40% although this implies weak performance elsewhere considering the extent of fall in group revenue.

Lost market share is shown by Aldi's sales up 40.2% in April while Lidl's rose by 27.3%. Clearly a large proportion of consumers are trying to economise despite early signs of economic recovery and if the German grocers are seen to provide good quality while extending their UK coverage then their gains in market share could be permanent.

The chief executive reckons it could take six months to see the true impact of price cuts and points to Asda, another northern England grocer, cutting out vouchers and promotions to focus on low, stable prices - with the result that it has become the fastest-growing of the big four supermarkets.

Fair enough, and reason to be following Morrisons, however it needs to be seen just how sustainable these price cuts can be - for example by improved buying and sourcing, than ceding margin. Some shoppers may feel cynical how supermarkets have confused them with bogus "offers" - where prices are discounted after appearing at a higher price for the legally minimum period, such that the "offer" is effectively the going market price.

Takeover unlikely

Morrisons also needs to better define what its brand stands for, building on its historic culture of "quality in everyday low prices". Since the integration of Safeway, some stores in southern England have looked faded and the self-service checkouts erratic.

The age profile of shoppers tends to be older; Morrisons could do more to attract the 18-30 age-group. Recently there have been re-fits along new designs, for example at my local stores close: will this capital expenditure create value or is it just another desperate effort to withstand slippage in the battle for market share?

Since the top four shareholders (each with about 5%) are American it is possible they try to be pro-active, e.g. calling for a more vigorous sale and leaseback of properties than the current plan to dispose of £1 billion peripheral assets in a £9 billion estate by 2016/17.

Morrisons owns 90% of its stores, a much greater proportion than its rivals. But vigorous disposals could disrupt the business at a crucial time, and ownership is a prudent hedge against the likelihood of rates rising over the long-term. So shareholder action seems able to achieve little here.

Nor does a takeover appear likely, despite strong cash flow which is the usual temptation for private equity buyers. The table also shows high rates of capital expenditure and the disruption of a takeover may further undermine Morrisons ability to compete. A more likely scenario if financial results continue to disappoint is shareholders calling for boardroom changes.

Sainsbury's faces similar dilemmas with its FTSE 100 shares yielding about 5.25%, covered 1.8 times by forecast earnings (better than Morrisons) and with net tangible assets of 294p a share.

With supermarket shares falling close to asset values and offer useful dividends there is reason to follow them more closely - but I would let the price battles run further. See what is the upshot for at least another round of trading updates; and in particular for Morrisons, what wider marketing initiatives the group has in store - forgive the pun!

For more information see morrisons-corporate.com."