-- adds price, CEO comments--
Morrisons (LON:MRW) is to spend £1bn cutting prices to bolster its market position after it slumped into losses and warned over this year’s performance.
Shares in the supermarket group tumbled by a tenth as City analysts expressed dismay at the forecast, while the prospect of a major price war among the big four supermarkets also hammered share prices of its rivals with J Sainsbury (LON:SBRY) down 7% at 308p and Tesco (LON:TSCO) 4.5% lower at 300p.
Broker Panmure Gordon described Morrisons’ forecast of profits this year to between £325mln to £375mln as “truly awful” and half its previous epectations.
Morrisons is being squeezed by the growth of no-frills competitors such as Aldi and Lidl and has been slow to set up an online operation, though it has addressed this recently with a tie-up with Ocado.
Turnover fell 2% to £17.7bn in the year to 2 February, with like-for-like sales 2.8% lower. Underlying profits fell by 13% to £785mln but one-off writedowns of £903mln pushed the grocer into a loss of £176mln.
The group admitted it had been a disappointing year in challenging conditions, but that it was taking “bold” action to rectify its problems.
Dalton Philips, chief executive, said: “We are significantly reducing our cost base and will invest £1bn into our proposition over the next three years, to improve our value even further and to defend and strengthen our competitive position.
Customers will see this in our stores as well as in our fast growing online and convenience offers.“
Most of the write-offs related to businesses earmarked for disposal such as Kiddicare and Fresh Direct, though Morrisons resisted calls for its split off its properties and will retain 80% of its £9bn estate as freehold.
For the current year, Morrisons said underlying profits would be after charging £65m of new business development costs and £70m of one-off, non-recurring costs. Dividends would also grow more slowly that earnings in the future it added.
Shares fell 7% to 217p.