• Morrisons to make extra £50m profit for first half of year
• Next says profits will be £30m higher than forecast
Supermarket group Morrisons and fashion retailer Next cheered the City this morning as they said profits for the last six months will be considerably higher than expected.
Both companies rushed out unscheduled trading updates today after calculating that, despite the recession, their earnings have beaten market forecasts.
Morrisons said it will make an extra £50m profit for the six months to the start of August. Its store modernisation plan is also expected to yield an extra £20m in savings, which should push pre-tax profits up from the previous forecast of £670m to around £740m.
This sent shares in the UK’s fourth largest supermarket chain soaring by 10% to 279p when trading began in London. Other retailers also rallied, with Marks & Spencer, Sainsbury’s and Tesco all among the biggest risers on the FTSE 100.
Nick Bubb, retail analyst at Pali International, said today’s trading updates were a welcome surprise.
“The green shoots are alive and well and it will take a hurricane in the autumn to blow them over,” Bubb said.
Morrisons said that the number of customers visiting its stores was continuing to rise. The average basket size has also increased, indicating that it continues to be one of the winners of the economic downturn.
“The strong start to the year has been maintained through the second quarter,” the company said. “An increasing number of customers are shopping with Morrisons attracted by the group’s fresh offering, keen positioning on price and promotions and its industry-leading service and availability.”
Bank of America analyst John Kershaw said Morrisons had “hit expectations for six”.
“We felt Morrisons was driving sales and margins but this profit performance is in a different orbit,” said Kershaw, who raised his target for its shares from 280p to 310p.
Kershaw added that Morrisons would have benefited from the sunny weather in May and June.
David Buik, City commentator at BGC Partners, said that today’s figures showed that Morrisons’ chief executive, Marc Bolland, was the right man to succeed Sir Stuart Rose at Marks & Spencer.
“Morrisons has never looked back [since Bolland took over] and is clearly snapping at the heels of Tesco, Asda and Sainsbury’s,” said Buik. “If there was any way that M&S could crowbar Marc Bolland out of his current employers, he would make a massive contribution to M&S rising like the phoenix from the ashes.”
Clearance sales start well
Next also said it was profiting from the warmer weather, as it told investors that it expected profits for the current financial year would be £30m higher than forecast.
Sales of summer clothing rose sharply and Next struck better deals than expected with suppliers. It began its end of season sale last weekend with less unsold stock than a year ago, which should mean less pressure to slash prices.
“The initial clearance rates have been encouraging,” said Next.
It had been due to release its first-half trading statement next week, but said today that like-for-like sales on the high street were down 1.9% – a smaller drop than expected. Sales through its catalogue business were up 1.1%.
Shares in Next slipped slightly today, down 0.6%, having risen by 20% in the last month.
The firm did caution that rising unemployment would have an impact on its performance in the next six months, and warned that swine flu could outweigh the benefits of good weather later this summer.
“Our forecasts do not account for any significant impact on sales from swine flu, and as yet we have observed no material effect. However, there is downside risk to our expectations if wider infection rates deter shoppers,” Next said.
