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Morrisons set to outpace Sainsburys again

Article By: ,  Financial Analyst
May 2, 2017 5:30 PM

Morrisons is in third place after Sainsbury’s in terms of UK grocery market share, but investors think that pecking order may not last.

Over a year, Morrisons’ stock added around 27% up to Tuesday’s close, whilst Sainsbury’s, although well off their post Brexit-vote lows, was 3% lower.

Morrisons' stronger price return reflects the fact that among the Big 4 UK retailers, it is no longer the runt of the litter. It did acknowledge, earlier in the year, uncertainties ahead that all consumer-facing companies will face. The group pointed particularly to “the impact on imported food prices if sterling stays at lower levels”. Again, like its rivals, it also faces pressures from pension fund depreciation and the increasing burden of statutory wage rises.

Against these concerns, the return of grocery price inflation this year will be a double edged sword even for the most robust retailers. Partly due to seepage from galloping food manufacturing and import prices after sterling’s devaluation last year, rising high street prices flatter supermarkets’ top lines, but the worry is the potentially negative impact on consumer behaviour.

Retail sales data have already begun to show a sharp slowdown in shopper enthusiasm, whilst grocery prices jumped 2.3% in the 12 weeks to 26th March, according to Kantar Worldpanel. 

At Morrisons and Sainsbury’s, which both report sales on Wednesday, the pace of improvement—if there is one—will need to be faster than high street price rises.

Investors are likely to be more sanguine if there’s any slippage at Morrisons, after its Christmas same-store sales rose at their fastest pace in 7 years, up 2.9%.

At Sainsbury’s however, a faster fall in grocery sales than the 0.5% decline it reported between January and the end of February, is likely to be punished.

Sainsbury’s will also report 2016 earnings. The market is expecting core profits to slump about 5% to £690m, whilst its operating margin is expected to narrow to 2.5% from 3% at the end of March 2016.

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