Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US) this morning released a trading update covering the Christmas period, and announced the sacking of chief executive Dalton Philips.
Morrisons said total sales (excluding VAT and fuel) were down 1.3% over the six weeks to 4 January. The closely watched like-for-like number came in at -3.1% — worse than Tesco (-0.3%) and Sainsbury’s (-1.7%) — but better than the -3.8% analysts had been expecting.
Morrisons’ sales performance was also a big improvement on the -6.3% it posted in Q3 and -7.4% in the first half of the year. So, the company’s strategy to return to growth appears to be gaining traction.
Morrisons has been later than other supermarkets to enter the growth channels of online and convenience, but reported a strong performance from its nascent businesses in these areas. Management said the group recently delivered its one millionth online order on the first anniversary of the web launch, and that double the number of customers as last year were served in the company’s growing chain of convenience stores.
Morrisons also revealed that sign-up for the company’s recently launched Match & More loyalty card scheme is ahead of managements expectations.
The Christmas trading performance enabled Morrisons to reiterate its previous guidance for the company’s financial year to 21 February: underlying profit before tax of £335m-£365m (after £65m of new business development costs and £70m of one-off costs), and year-end net debt of £2.3bn-£2.4bn.
The company added that it proposes to close 10 loss-making stores during what it expects to be a “highly competitive” year ahead.
In a separate statement, Morrisons said that new chairman Andrew Higginson will take over from Sir Ian Gibson on the latter’s retirement later this month, and that chief executive Dalton Philips will be leaving after five years with the company.
Higginson commented: “In the next chapter of Morrisons development, we need to return the business to growth. The Board believes this is best done under new leadership”.
The company said it is to start the search for a new CEO and that Philips has agreed to stay on until 12 March to ensure a smooth handover.
So, what does all this mean for investors? Well, the market has welcomed the news, pushing the company’s shares up 5% in early trade to 186p. But shareholders should be concerned that the Boardroom changes could lead to a change to Morrisons’ current super-generous dividend policy.
The company had previously committed to pay a total dividend for 2014/15 of not less than 13.65p, giving a massive 7.3% yield at the current share price. With Tesco having suspended its dividend and Sainsbury’s having pegged its payout to (falling) earnings, Morrisons’ new management has every reason to rebase its own dividend
A 7p annual payout (3.8% yield) would be twice covered by Morrisons’ coming year’s forecast earnings, and be in line with Sainsbury’s 2x dividend cover policy.