Morrison's CEO Dalton Phillips axed after paltry Christmas sales
Morrison's has given chief executive Dalton Philips the axe after he oversaw the worst Christmas performance of the Big Four supermarket groups, although sales were not as bad as the City expected.
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Like-for-like (LFL) sales excluding fuel fell 3.1% in the six weeks to 4 January, better than the 3.8% decline that the analyst consensus had predicted, it was far in excess of the 0.3% decline at Tesco and Sainsbury's 1.7% slide.
Black Friday impacted the start of the reporting period, but both LFL and volume performance were stronger in the last four weeks, leading to total sales excluding fuel falling 1.3% and full year result expectations remainig unchanged.
Following Tesco’s announcement last week of its closure of 43 loss-making stores, Morrison revealed it will close 10 of its worst performing stores, with more than 400 employees affected and the sale of around £50m of selling space.
Even though LFL sales and key performance indicators (KPIs) represented an improvement on recent quarters and were better than forecast, the board felt a change was needed at the top.
"In the next chapter of Morrisons development, we need to return the business to growth," said deputy chairman Andrew Higginson. "The board believes this is best done under new leadership."
CEO Philips, who was hired in 2010 and retains a great deal of respect in the industry for his attempts to drag operations at the Bradford-headquartered business up to modern-day standards, will stay on until year-end results to ensure a smooth transition.
Morrison’s recent trading is set against a dreadful backdrop on the back of third quarter LFL sales that were down by 6.3% and two years of favourable comparatives given the 2.5% fall in LFL sales in the 2012 Christmas period and the 5.6% reduction in 2013, noted broker Shore Capital.
"Accordingly, the improvement revealed for the Christmas 2014 trading period is much needed albeit appears to be as about favourable multi-year comparatives rather than any notable advancement in underlying trading in our view."
Like Sir Alex, Sir Ken loomed large over the chain; nothing Morrisons did seemed to make a difference to sales.
— Steve Dresser (@dresserman) January 13, 2015
Morrisons: Don't forget though that DP had a huge challenge to change M operationally&structurally during a time of massive industry change
— Justin Scarborough (@justinscarboro2) January 13, 2015
Said Philips: "Although there is still much to do, we are building the platform to enable us to compete better in an industry that we expect to be highly competitive in the year ahead."
The new Ocado-powered online grocery business contributed 1.0% to LFL sales during the period, while Morrisons efforts to tap into the faster-growing convenience store grocery segment saw 17 'M Local' stores opened in the fourth quarter and almost double the number of customers served during the year.
On operational KPIs, items per basket improved strongly from -2.4% year-on-year in the third to -0.2%, and number of transactions from -3.3% to -1.7%.
ShoreCap believes Morrison is "an interesting recovery play given that management has taken some tough medicine already, particularly with its cost base and cash outlays".
"Whilst indebted, management has today reiterated an expectation of year-end net at £2.3bn-2.4bn after circa £400-500m of property disposal proceeds, Morrison’s is expected to deliver a year-on-year reduction in leverage, and unlike Tesco it has much more manageable pension responsibilities."
Himanshu Pal, director of retail insights at Kantar Retail, said the sales slump marked the end for Dalton Philips "who was already facing criticism from stakeholders and life president Ken Morrison".
"Morrisons has taken a hit from the discounters and is likely to continue suffering in the short-to-medium term as shoppers continue to defect to the likes of Aldi and Lidl and as a result of food deflation."
However, Pal suggested the retailer might take heart from the performance of its convenience and online channels.
"These channels are relatively new to Morrisons’ portfolio and only account for a fraction of total sales (combined sales of £500 million for FY 2014), but the two channels continue to exhibit good momentum with regards to growth as well as shopper traction."