Morrisons says profits likely to take big hit from inflation and Ukraine war

Supermarket warns of ‘material adverse effect’ on earnings and sales as grocery market struggles with disruption and rising prices.

Morrisons has warned its profits are likely to take a significant hit this year as the cost of living crisis and disruption due to the war in Ukraine weigh on the grocery market.

The UK’s fourth largest supermarket chain said “developments in the geopolitical environment” and “ongoing and increasing inflationary pressure” since the beginning of February were hitting consumer sentiment and spending.

It said it was difficult to predict how long the problems would last, and that unless conditions improved, it could face a “material adverse effect” on sales and earnings for the year.

It had already seen a fall in earnings for the three months to 30 January compared with the same period in the previous year. In a statement issued before a meeting with investors who helped finance a £7bn takeover deal in October, Morrisons said underlying quarterly profits to January had plunged almost 10% to £316m.

The statement highlights retailers’ struggle with soaring inflation on basics from milk and eggs to sunflower oil and wheat. Disruption to supply chains caused by the war in Ukraine has added to existing pressures resulting from a surge in consumer demand as pandemic restrictions have unwound in many countries.

Rising energy prices – partly resulting from sanctions on Russia, which is a major oil and gas supplier, as well as increased labour costs in the UK linked to Brexit and the pandemic – are also adding to costs for businesses and fuelling inflation.

Families have begun changing their grocery-buying habits as they look for ways to save money in the face of higher energy bills and petrol prices, with many switching to shopping at discounters.

About a third of food and drink businesses reported that sales were below their expectations between December and February, according to the latest data from the Office for National Statistics.

The ONS also found that food and beverage producers were more likely to have incurred extra costs because of energy price rises and Brexit compared with other businesses.

Morrisons appears to be one of the biggest losers from consumers trading down. In the latest data from industry analysts Kantar, the retailer’s sales fell 11.5% in the three months to 20 March, more than any other major chain.

Aldi and Lidl, the German discount chains that typically do well when family budgets are under stress, were the only grocery retail chains to see sales increase as they drew bargain-hunting shoppers.

Source: The Guardian