Morrisons and John Lewis Partnership

“The FTSE 100 is pausing for breath after fighting back earlier this week. On Thursday morning it was flat at 7,306 with gains in the banking and mining sectors offset by weakness among utilities and consumer goods companies,” says Russ Mould, InvestmentDirector at AJ Bell.

Morrisons

“For all the talk about heightened competitive pressures, Morrisons is doing a very good job of growing earnings and generating value for shareholders.

“Its latest results show underlying profit up, growth in the dividend plus a special dividend on top and net debt is down.

“The wholesale operation looks to be doing better than expected and its online delivery service has expanded so that it now reaches 75% of British households.

“At present the business is clearly on a roll, but the big question is for how long this can last. Latest figures from Kantar Worldpanel show that Morrisons has a 10.4% market share, bigger than Aldi and Lidl but much less than Tesco, Sainsbury’s and Asda.

“Should Sainsbury’s get clearance from the competition authorities to merge with Asda, Morrisons would suddenly look much weaker. That may prompt Morrisons to seriously think about a tie-up with Co-Op.

“Combining forces would theoretically see an enlarged Morrisons/Co-op business have a 17% market share based on the latest Kantar numbers. That is still less than the 30.7% share from a combined Sainsbury’s/Asda, but clearly enough to put Morrisons significantly ahead of Aldi and Lidl.”

John Lewis Partnership

“No company ever likes to report a drop in earnings and there will certainly be red faces at John Lewis given it has revealed a whopping 99% decline in half year profit.

“A decade or so ago, John Lewis was the envy of the retail world with tens of thousands of staff picking up generous bonuses on the back of rising profits. Fast forward to the present and the business is clearly struggling to stay relevant.

“Profit margins have been hit by the need to cut prices to stay competitive. In reality, John Lewis is losing its once-prized status as being the first place you went to buy goods like furniture, or quality food in the case of its Waitrose business.

“Today consumers have so much more choice and plenty of retailers who arguably offer better customer service and decent quality items at cheaper prices.

“John Lewis no longer has a differentiated offering so management are going to have to think very hard how to fix the problem in order to give the business a decent future.”

These articles are for information purposes only and are not a personal recommendation or advice.