Higginson takes over as chairman

Philips pays the price for Morrisons’ slump in sales

Dalton PhilipsMorrisons chief executive Dalton Philips is to step down and new chairman Andrew Higginson will take over sooner than planned following poor  trading period in the run up to Christmas.

The company also intends to close 10 stores.

Philips has agreed to stay on as head of Britain’s fourth-biggest supermarket chain while a search is undertaken for his successor.

Trading improved through Christmas and price cutting helped the chain grow its share of food sales.

But in the six weeks to 4 January, total sales excluding fuel were down by 1.3% and like-for-like sales excluding fuel down were down 3.1%.

Taking account of fuel sales, total sales including fuel were down 3.6% and LFL sales including fuel were down 5.2%. Online contributed 1.0% to LFL during the period.

Mr Higginson, formerly of Tesco, will now succeed Sir Ian Gibson next week rather than later in the year and it was anticipated.

Mr Higginson said today: “In the next chapter of Morrisons development, we need to return the business to growth. The board believes this is best done under new leadership.

“I would like to thank Dalton for his contribution as CEO.  He has brought great personal qualities and values to his leadership of the business, having had to manage against a background of considerable industry turmoil and change.

“He deserves particular credit for facing into and dealing with the pricing issues that have now become evident, for taking the business into the convenience and online channels, and for the steps he has taken to modernise the company’s operating systems. We wish him well for the future.”

Mr Philips succeeded  Marc Bolland as chief executive in March 2010 and is also on the board of the Department for Business, Innovation and Skills.

Ironically, pressure is also mounting on Mr Bolland who has struggled to revive the important clothing division at Marks & Spencer.

Philips’ problems have mounted as Morrisons has been criticised for being left behind in online shopping and in setting up convenience stores.

It now shares the problems besetting its rivals in trying to compete with the discount chains Aldi and Lidl.

A profit warning last year added to speculation aroud Mr Philips’ future.

Analysts were scathing in their criticism of the chain’s weak performance.

John Ibbotson of the retail consultants, Retail Vision, said: “Never have such poor results been so highly regarded. It’s verging on the tragi-comic. Philips has been in the firing line for some time so it’s no surprise he’s on his way out.

“Late arrivals to online, convenience, a delayed incursion into the rich south, and hesitant leadership, effectively sealed his fate.

“While sales may be improving slightly, Morrisons remains, by a distance, the weakest of the Big Four.

“Despite cutting prices and trying to match the discounters, Morrisons has lost its price perception and leadership to ASDA.

“In a consolidation environment, it’s looking like the most obvious takeover candidate — but who would want them?”

Phil Dorrell, director of retail consultants, Retail Remedy, said: “If other members of the Big Four supermarkets are the squeezed middle, Morrisons is being steamrollered flat. The departure of its chief executive was grimly inevitable.

“With the most dated stores and weakest business strategy of the old guard grocers, Morrisons has haemorrhaged both sales and share to the brash young discounters who took its cheap prices USP, improved it, and then unceremoniously yanked the rug from underneath it.

“Despite a big improvement on a disastrous Q3, Morrisons’s like-for-like sales continued to plummet over Christmas.

 “The biggest surprise in these grim results is the decision to close just 10 stores. The brand’s property portfolio is one of few ‘get out of jail’ cards – and it is busy playing it by unloading up to £500m of property assets this year.

“Other props for the stumbling business are few and far between. It has finally completed a million internet orders, but Morrisons is so late to the online party that its rivals have already polished off the cheese course, leaving it hovering awkwardly by the door. Trumpeting its on-time delivery stats is a distraction in a business which has to be first and foremost about volume.

“Falling sales is not the biggest issue, rather the problem is that its sales are falling much faster than those of Sainsbury’s and even Tesco. Dalton Philips will be relieved not to face another bruising AGM; last time he was heckled by his own chairman.

“Despite its multiple problems, Morrisons remains a solid business – or at least it would be if it could get its offer right. It just needs some real muscle to convince people it is attractive again. The marketing over the last few years has been dire, and has done nothing to change its tired public image. The brand needs to be much bolder if it is to recapture the distinctive market niche that it created and then lost.”

Ian Forrest, investment research analyst at The Share Centre,  said:  “Morrisons beat market expectations today with a 3.1% drop in like-for-like sales for the six weeks of the Christmas trading period, excluding fuel. That compares with the 5.6% fall seen for the same period last year and the 6.3% decline in the previous quarter. Profits guidance was maintained at £335m-£365m and 10 loss-making stores are to close in 2015.

“The market welcomed this slightly better news with tentative signs that its new strategy is beginning to bear some fruit. The new Black Friday phenomenon clearly didn’t help trading, but its online channel is performing well and property disposals are set to raise up to £500m this year. Some investors may also be relieved to see that Morrisons is now looking to new leadership given that the shares have fallen 38% since Philips became CEO in 2010.

“We recommend Morrisons as a ‘hold’ given the attractive dividend and longer term contrarian investors may feel the company’s intrinsic value is being overlooked. However, significant headwinds such as poor market conditions, intense sector competition and low investment levels, remain.”

In an overview of the supermarket sector, he said:  “The seasonal retail flurry has failed to reignite the supermarket sector in the FTSE350, with the other big players Tesco and Sainsbury’s seeing like-for-like sales fall in the festive period.  The last year has seen UK food retailers struggle, with the ongoing price war with discounters impacting their bottom line as well as market share.

“The food and drug retailer sector is dominated by Sainsbury’s, Tesco and Morrisons, who account for £9 of every £10 generated in profit by the sector. However, squeezed margins have undermined earnings, with annual profits after tax reported in the 12 months to September falling by 15% annually, dropping to £2.5bn. As we have seen with Tesco, falling profits place dividends under pressure, so it is crucial that prospective investors in the sector do their homework before investing.”

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