[caption id="attachment_80291" align="aligncenter" width="620"] Source: Company reports/Coresight Research[/caption]   FY19 Results Morrisons reported FY19 results with both top-line and EPS slightly missing the consensus but otherwise showing strong growth. The highlights are as follows:

• Morrisons grew total sales 2.7% year over year to £7 billion (growth was 4.7% on 52-week basis after adjusting for previous year’s 53 week). The 52-week ex-fuel revenue growth was 5.1%.
• The company grew same-store sales 4.8% year over year ex fuel and VAT, ahead of consensus of 4.5%, retail and wholesale contributing 1.5% and 3.3%, respectively.
• The gross margin contracted 24 basis points (bps) year over year to 3.4%.
• Operating margin contracted 43 bps year over year to 2.2%.
• The company reported diluted EPS of 10.11 pence, down 22.4% year over year. After adjusting for exceptional items, diluted EPS was 12.88 pence, up 7.9% year over year but below the consensus of 13.1 pence recorded by StreetAccount.
• Major exceptional items include costs associated with the early repayment of borrowing facilities and other refinancing activities (£33 million), costs associated with closing pension plans (£19 million), increased stock provisioning (£28 million) and a one-off costs associated with improvements to the group’s distribution network (£12 million).
• The company noted its annualised wholesale supply sales were £700 million in 2018, ahead of initial guidance.
• The company highlighted the original disposal program was achieved with disposal proceeds of £22 million in the current year (compared to £108 million in 2017), bringing the total to £1.02 billion since the program started.

Management noted that “This is another strong performance, with the core supermarkets continuing to grow despite some significant headwinds such as depreciation and start-up costs as we continue to build a broader, stronger Morrisons. We invested in both the start-up of our new store pick capability and the new Erith CFC for Morrisons.com, and the accelerated roll-out of wholesale supply to McColl’s. This enabled us both to increase our online household coverage significantly and achieve our target of £700 million of annualised wholesale supply sales earlier than expected.” CEO David Potts said “A third consecutive year of strong sales and profit growth, and a total annual dividend up over 150% during those three years, show the Morrisons turnaround is well on track. This turnaround is based on improving the shopping trip for customers, making Morrisons more popular and accessible.” Outlook Morrisons set targets for FY20 as follows:

• The company expects to start supplying McColl’s remaining 300 convenience stores towards the end of 2019, and expects £1 billion of annualised wholesale supply sales in fiscal 2020.
• It expects £12 million incremental profit from wholesale, services, interest and online, taking the cumulative total to £54 million. The company believes it is on track to achieve its £75-125 million target.
• The company expect to achieve a £1.1 billion target in disposal proceeds.

In FY20, the consensus estimates by StreetAccount predicts Morrisons will report revenues of £18.39 billion, up 3.7% year over year, and EPS of 14.1 pence.