What caused Morrisons' spectacular 52% fall in profits?

Supermarket suffers huge drop

It’s a tough time for mainstream supermarkets at the moment. The chaos in the retail market caused by the recession threw growth strategies up in the air and only those with the best management have seemed to land safely.

Morrisons is one of the supermarkets that has not fared so well, to put it bluntly.

The troubled supermarket posted its worst annual results in eight years today, with profits down a whopping 52% to £345m for 2014.

This is almost a third of 2012’s £947m and less than half of 2013’s £879m.

Morrisons profits gif

Turnover was down 4.9% to £16.8bn, from £17.7bn in the previous year and like-for-like sales were also down 5.9%.

The poor results, which covered the year to 1 February 2015, seemingly prompted the exit of CEO Dalton Philips, who will be replaced by former Tesco executive David Potts. (Read:7 vital things you need to know about Morrisons new CEO David Potts)

Philips’s departure in January followed a 3% drop in sales over the Christmas period.

What happened?

Morrisons has taken a huge hit to its books with a £1.3bn write-down in its property portfolio. That’s £1.3bn gone from its results after overvaluing its assets. Morrisons, which owns most of its stores has suffered badly, but it’s expected other supermarkets could follow when they release their results this year.

But management can’t blame the property write-down for all the firm’s woes. Chairman Andrew Higginson admitted to the media this morning that its convenience store enterprise had not taken off as well as had been hoped and Morrisons was still playing with the model.

The supermarket has 153 M Local stores after opening 57 last year, however, it announced the closure of 23 stores this year.

In a veritable lament to BBC Radio 4’s Today programme, Higginson said the supermarket had been at its best under the management of founder Sir Ken Morrison – a man who has been fiercely critical of the way the company had been run since he stepped down, once famously calling Philips’s strategy “bull***t”.

In January, Sir Ken told the Daily Mail: “I think management has been somewhat remiss in the way they are running the business. They can’t make excuses all the time.”

Higginson said under a new CEO, Morrisons would become more customer-focused and concentrate on becoming more like the brand it had been.

He said: “Last year’s trading environment was tough, and we don’t expect any change this year. However, Morrisons is a strong, distinctive business – we own most of our supermarkets, have strong cash flow, and are famous with customers for great quality fresh food at low prices. This gives us a good platform.”


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