UK supermarket group Morrisons said today (8 March) it anticipates delivering “profitable growth” in 2012 at the same time as increasing its level of investment in long-term strategic initiatives.
The company, which delivered an 8% increase in underlying profits for 2011 on turnover that was up 7%, said that it expects profits to continue to grow faster than the top-line during the coming year.
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Speaking at a press conference following the group’s results release, CFO Richard Pennycook said increased efficiency would make a significant contribution to profitability in 2012.
During 2011, Morrisons delivered a 20 bps improvement in margins. Pennycook said this was achieved through the strides the company has made in driving down the costs associated with its indirect procurement – in “buying better” – as well as increasing in-store productivity.
Procurement contributed 4.3% to savings in the 12 months, while store productivity contributed 2.9%, management revealed.
In terms of cost cutting, Pennycook insisted that there is still “more to come” and the group expects to drive further margin improvements in the coming year.
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By GlobalDataHowever, Morrisons was less bullish in its outlook for sales expansion, with CEO Dalton Philips warning: “The economy in 2011 continued to put the squeeze on customers… 2012 will be no less challenging.”
While Philips insisted that Morrisons is “well-placed” to serve the needs of price-conscious consumers through its base price positioning and promotions, such as the Great British Price Crunch, he inferred that the retailer would refrain from chasing volumes at the expense of margins.
“The retail environment is very competitive but at Morrisons we will continue to keep our composure and manage both sales and margin lines,” he told journalists this morning.
Over the next 12 months, Morrisons has indicated that it will increase its capex to GBP1.2bn (US$1.89bn), up from GBP1bn last year.
Of this, the supermarket has earmarked GBP100m to fund expanding its multi-format, multi-channel approach.
Morrisons revealed that it will launch its website to sell general merchandise in the fourth quarter of the year. While Philips revealed that the group had a “team” studying the operations of EBIT-generating Fresh Direct, the US online food retailer in which Morrisons acquired a stake last year, he reiterated his commitment that Morrisons will not launch online food sales until management believe this can be done on a profitable basis.
The company will also focus on expanding its M Local convenience chain, with 20 store openings planned this year, and a further 50 store openings projected for 2013. Philips said that the group’s “hub and spoke model”, which sees supermarkets supplying fresh goods to the smaller stores, allowed “room to grow” for the foreseeable future. He added that the three M Locals Morrisons currently operates have generates sales and margins “well ahead” of expectations.
The majority of capex, however, will be used to “fill in the white space” on the map and open new stores, management revealed. Morrisons has targeted a 2.5m increase in square footage by 2014 and expects to open 700,000 square foot of new selling space – around 25 supermarkets – this year.
While Philips conceded that this “positive expenditure” in the form of growing investments did have an impact on the retailer’s profit forecast, he insisted that such spending was necessary to develop the company’s long-term growth potential.
“We are trading for today whilst building for tomorrow,” he concluded.
