Safeway stores reaping rewards from Morrison brand
Supermarket group Morrisons today cheered the London financial sector with news that converted Safeway stores were reaping the benefits of their change to the Morrisons format.
Shares surged 11% as chairman Sir Ken Morrison announced he will speed up the conversion programme, in a move that could see the Safeway brand disappear by the end of next year.
It came despite further trouble at the unconverted Safeway stores, which saw like-for-like sales drop 10.1% in the first 10 weeks of the second half.
Same-store sales at the converted sites were 12.5% higher excluding petrol, while core Morrisons store sales rose 4.6%.
Bradford-based Morrisons, which bought Safeway earlier this year, confirmed that problems integrating the estate helped force its half year profits down to £121.6m (€176.1m) from £131.6m (€190.6m) last time.
This was in line with analysts’ expectations following a profits warning earlier in the year.
Although Morrison admitted the last six months had been tough, he said: “This is an ambitious programme and one we will deliver.”
He added: “A great amount has been achieved in the last few months which have illustrated what a good business Morrisons is and has convinced me of what a good deal the purchase of the Safeway business will prove to be.”
Detailing the problems in integrating Safeway, Morrisons said there were many operating differences in the way the two companies were organised. It said the two cultures had “little in common”.
The introduction of a completely new accounting system by the previous directors and management of Safeway made the job much more complicated.
The group said it was due to accelerate the conversion from three stores a week to a minimum of four a week.
The conversion programme is now expected to be completed by the end of 2005, with 41 stores converted to date.
Analyst Paul Kavanagh at stockbroker Killik & Co said: “Earlier in the year, I thought we would see another warning from Morrison before they got Safeway right.
“That looks avoidable now and the early success on converted stores encouraging.”
Broker Credit Suisse First Boston said the results were “a touch disappointing” but that the company’s tone was relatively upbeat.
Morrison refused to comment on reports that the group was selling up to 120 convenience stores to rival Somerfield, but said he had made no secret that he was “testing the market”.
“We are basically sounding the market at this stage, that’s all that’s happened,” he added.
The core Morrisons chain delivered a strong performance, with like-for-like sales 8.9% higher in the six months to July 25. This compared with a 7.9% decline in Safeway sales.
