Morrisons overtakes Asda as Big Four cheapest

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Morrisons is expected to report an improvement in underlying sales when it reports annual results on Thursday.

The newly reinstated FTSE 100 firm has been working hard to cut prices and restore its former reputation as being one of the cheapest on the high street.

Morrisons continues to pleasantly surprise us

Analyst

According to the latest Which? report, Morrisons has overtaken Asda as the cheapest main supermarket following Morrisons’ 1,000 price cuts earlier this year.

​Which? said Morrisons​ unseated long-standing champion Asda, which has been cheapest every month since ​it​ started tracking in July 2013.

Morrisons is expected to report a 2.1 per cent decline in like-for-like annual sales on Thursday, a marked improvement on the 5.9 per cent fall in 2014.​

However its financial performance will remain under pressure, with underlying pre-tax profits predicted to fall for the full year to £307m, down from £345m in 2014, as fierce competition in the UK grocery sector continues to bite.

The group said it would also be hit by £60m of restructuring costs from store closures and axing around 700 jobs at its head office under chief executive David Potts.

Shore Capital analyst Clive Black said the grocery sector looks set to “remain intense” in the months ahead, with major stores continuing to cut prices on fresh and chilled foods as German discounters Aldi and Lidl continue to threaten their market share.

It comes after Morrisons surprised the market over Christmas by reporting a 0.2 per cent rise in like-for-like festive sales.

Since then, it has pressed ahead with plans to move the business on to firmer financial ground, announcing a trade tie-up with online retailer Amazon and price cuts on more than 1,000 products.

Morrisons said the supply deal will give Amazon customers access to fresh and frozen products by providing hundreds of items through its food delivery service Amazon Pantry and its subscriber service Amazon Prime Now.

Mr Black at Shore Capital said: “Morrisons continues to pleasantly surprise us. The group is seeking to self-improve within tight capital controls. It is a long journey but travel has commenced.

“Operational improvement should lead to free cash generation that shareholders can expect in time to receive in our view. We expect chief financial officer, Trevor Strain, to embellish the group’s finance and balance sheet strategy a little more at the group’s preliminary results on March 10. We now wait to see how the tie-up with Amazon builds.”

Morrisons said it would also boost its website after agreeing a deal in principle with online grocery retailer Ocado. Morrisons said it would take up space at Ocado’s new customer fulfilment centre in London, in a move to “sell to customers all over Great Britain”.

But it said the agreement is subject to terms and would only be agreed if Morrisons achieves profitable growth online.

Morrisons signed a £170m contract with Ocado in 2013, providing the supermarket with its first online delivery service.

Analyst James Collins at Stifel said: “Having stopped the rot and improved standards in stores, the Morrisons management team has moved effectively to expand the geographic reach of its .com business to a more credible level. Another tick in the box of sensible management moves.

“Out of the leftfield, it has also announced a deal to wholesale to Amazon. Of the big four, Morrisons most certainly has the least to lose from giving Amazon a kick-start for its UK grocery ambitions and will additionally benefit from capital-light growth and a wider brand reach.”

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