Morrisons profits slump 29% despite sales growth hitting nine-year high

Morrisons has suffered a 29% drop in pre-tax profits despite seeing sales growth reach a nine-year high in the second quarter.

The grocery group released earnings on Thursday showing like-for-like sales – excluding fuel and VAT – grew 4.9% in the six months to August 5 compared to a year earlier.

Those figures were up 6.3% in the second quarter alone, marking a nine-year high, while total revenues for the half year were up 4.5% at £8.8 billion.

But top-line growth failed to salvage pre-tax profits, which fell 29% to £142 million, down from £200 million during the same period in 2017.

The drop was due primarily to a £51 million net adjustment, including a previously announced bond tender offer, the company said.

It also accounts for the way it now estimates stock provisions.

Underlying pre-tax profits for the period were up 9% at £193 million.

Chief executive David Potts said: “Strong growth, including our best quarterly like-for-like sales in nearly a decade, together with another special dividend for our shareholders shows how new Morrisons can keep improving for all stakeholders.

“Morrisons continues to become broader, stronger and a more popular and accessible brand, and I am confident that our exceptional team of food makers and shopkeepers can keep driving the turnaround at pace.”

The grocery group also announced plans on Thursday to pay an extra £91 million to investors after raising its total interim dividend 2p, or 132%, to 3.85p.

Morrisons shares were down 0.6% in morning trading.

The company highlighted an expansion of its online grocery services to a larger area in the South and into Scotland for the first time during the first half of the year, making its service available to over 75% of British households.

Back home, the company’s wholesale deal to supply 1,300 McColl’s stores progressed “more quickly than initially expected”.

Morrisons said: “As a result, we now expect to achieve our target of £700 million of total annualised wholesale supply sales ahead of our initial end-2018 guidance.

“Our plan for £1 billion of annualised wholesale supply sales in due course remains unchanged.”

Looking ahead, it also expects lower costs of both its Morrisons.com expansion and the ramping up of its wholesale supply operations.

“We are confident that Morrisons has many meaningful and sustainable sales and profit growth opportunities ahead,” the group added.