UK supermarket Morrisons sales dip in 'fragile' market

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A shopper leaves with her groceries at the Morrisons supermarket in Bradford City center, January 9, 2003. REUTERS/Ian Hodgson IH/JV/AH/File Photo

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  • Q1 like-for-like sales, ex-fuel/ex-VAT, down 6.4%
  • Total revenue up 2.6%, boosted by fuel sales
  • Trading environment 'very challenging'

LONDON, June 29 (Reuters) - British supermarket group Morrisons reported a 6.4% decline in underlying sales over its latest quarter, in what it called "a very fragile and difficult consumer environment."

Britain's fourth largest grocer after market leader Tesco (TSCO.L), Sainsbury's (SBRY.L) and Asda has been owned by U.S. private equity firm Clayton, Dubilier & Rice (CD&R) since October, though the takeover only gained final regulatory clearance this month. read more

Confidence levels among Britain's consumers sank to a record low this month as they struggle with the accelerating cost of living. Wages are failing to keep pace with inflation that hit an over 40-year high of 9.1% in May and is heading for double digits.

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Morrisons said its total revenue including fuel rose 2.6% to 4.6 billion pounds ($5.6 billion) over the 13 weeks to May 1, its fiscal second quarter, primarily due to a recovery of fuel sales, which increased 54%.

Core earnings, or adjusted EBITDA, rose 14.5% to 71 million pounds, reflecting a recovery in areas impacted by the COVID-19 pandemic as well as cost savings.

"With ongoing inflationary pressure and an increasingly subdued consumer sentiment, the trading environment has been very challenging," said Morrisons, while noting its underlying sales performance improved towards the end of the quarter, helped by Mother’s Day and Easter.

Monthly industry data has consistently shown Morrisons underperforming its three bigger rivals on a sales value basis. read more

However, CEO David Potts called its performance "resilient", pointing out the quarter compared to a period of significant COVID restrictions last year when travel and hospitality were both severely limited, boosting grocery sales.

In the same quarter last year, Morrisons also offered discounts to health workers, teachers, farmers and emergency services workers.

Morrisons differs from its main rivals as it also has its own manufacturing operations.

In May, the group acquired the McColl's convenience store business after it fell into administration. read more

"We are looking forward to working more closely with CD&R as we continue to drive the key pillars of our strategy, focused on being a broader, stronger, popular and accessible business," said Potts.

($1 = 0.8223 pounds)

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Reporting by James Davey Editing by Louise Heavens and Mark Potter

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