Morrisons profits slashed in half – but could partnership with Amazon revive its fortunes?

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UK supermarket giant Morrisons has today announced that profits have been slashed in half over the past year – costing more than £290m.

The retailer has blamed the COVID-19 pandemic – and is the latest firm within the sector to reveal the devastation caused by the crisis.

Profits before tax and exceptional costs slid by 50.7% to £201m for the year to January 31.

However, Morrisons revealed that online sales had tripled during the year, and that its capacity to deliver orders had increased five-fold. This area of the business was reported as profitable over the last year, and Morrisons belives there is still room for growth.

As a result, total revenue was up 0.4% to £17.6bn.

Andrew Higginson, Chairman of the company, said: “This has been a year where Morrisons’ resilience has been severely tested and I could not be more proud of the way the whole business has met that test. As we look forward to brighter times ahead, Morrisons is developing into a stronger, better business with deeper and closer relationships with our customers and the communities we serve.”

CEO David Potts added: “I’m pleased with the greater recognition, warmth and affection for the Morrisons brand from all corners of the nation, following a year like no other. We must now look forward with hope towards better times for all, and we’re confident we can take our strong momentum into the new year, targeting profit growth and significantly lower net debt during 2021-22.”

This year has already been a struggle for the firm – and earlier this month, it was revealed that they have fallen out of the FTSE100 for the first time in year.

What does the future hold for Morrisons?

Following the news regarding Morrisons’ dip in sales Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown spoke to Business Leader about how the supermarket’s new partnership with Amazon could soon reap rewards.

Morrisons’ ego was already bruised after being relegated from the FTSE blue chip league in the latest reshuffle and these latest results underline just how tough the year has been for the grocer.

Pre-tax profits fell by 62.1% to £165m as the costs of operating under Covid conditions took a big bite and the company ploughed money into catching up on its digital transformation. Online revenues tripled during the year, and group like-for-like sales rose 8.6%. It’s still seen as the underdog snapping at the heels of Tesco, J Sainsbury and Asda with more advanced delivery platforms

Its free cash position has deteriorated significantly, with outflows of £450 million over the year, compared to inflows of £218 million the year before.

The decline in car use during lockdowns has also hit the company hard with like-for-like fuel sales falling 43% again in January as people once again were told to stay at home.

However, amid the Covid gloom there are bright spots with signs Morrisons is laying the groundwork to take advantage of opportunities ahead, as it eyes the easing of restrictions.

Although online sales are still significantly behind its rivals, there is significant room for rapid growth.  It has edged a tiny step forward in market share to take a 10.3% slice of the sector in the 12 weeks to February 21st.

Its burgeoning relationship with the King of e-commerce also has huge potential. Morrisons on Amazon has been rolled out to 50 cities, and accounts for 10% of sales in most of the stores linked into the partnership. It also won the contract to supply the cashierless Amazon fresh grocery store which opened in Ealing, West London, with plans for more new concept stores to be opened. If it can become the minor royal in the Amazon empire, there could be siginificant rewards ahead.

The conversion of 300 more McColls convenience stores to the Morrison Daily format could help boost future revenues, given this sector has held up particularly well over the past year. But competition is fierce in the grocery sector and if Morrisons focuses on a’ pile it high, sell it cheap approach’ as it tries to keep its shoppers loyal post lockdown, the strategy could nibble into margins.

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