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The share price of Morrison (WM) Supermarkets (LSE:MRW) led the FTSE this morning, rising from 294.oo at yesterday’s close to to 312.00 minutes after 9:00 am. The MRW share price remains up 3.06% at 13:20 today, an increase of 9.10 pence to 306.30.
The investor response followed the release of Morrison’s first half results and its strategic highlights. Typically one would glibly observe that the appetite for the stock would have been in response to overwhelming financials and a gung-ho attitude expressed by the Chairman and CEO about the future. But that is not the case with this report. Sales were up marginally, gearing was up, interim dividend increased slightly, and net debt was down. However, pre-tax profit and underlying earnings were also down.
So, what was it that bolstered investor confidence?
I believe that it was CEO Dalton Philips forthright clarity about not only Morrison’s performance, but about the economy in general. He clearly separated the issues of “recovery” and “impact” in a way that the man on the street understands to be reality.
“Whilst early indications of a recovery in the UK economy are encouraging, we are yet to see this impact on consumers’ pockets.”
Philips statement was strong enough to grab headlines throughout the UK. It was, in my humble opinion, most profound. Leading a major retailer, he witnesses a scenario that miner, tech companies, oil & gas producers and, ahem, bankers and institutional investors rarely see. The latter see recovery. Philips sees the impact, and he realizes that it is, indeed, trickle down.
Suppose you have some old furniture that could be salvaged by recovering it. You find a reputable furniture repair place, then you trust them to reupholster or, shall we say, re-cover it. Whilst they have it, they encounter some material problems, so they let you know that the recovery is going to longer than expected. You understand, but, because you can’t afford to replace your chesterfield, you lay an old board across three stacks of books and make do the best that you can. And you wait.
Now, here comes the part where Philips is spot on . . .
The upholstery company calls and tells you that the material has come in, but it’s going to take longer to recover it than they had expected because, due to layoffs, they need to arrange for their upholsterers to return to work. Being a polite individual, you understand. But deep inside, you are longing for the days when you were able to relax.
Then you get another call. The good news is that your chesterfield has been recovered. You are about to jump for joy, when the upholstering company tells you that, due to their continuing financial difficulties, they are unable to hire or afford to hire any delivery people. You are beginning to lose patience, not to mention that you’ve got a few splinters in your arse, and that does not make you happy.
“Recovery?” you ask. “I don’t see any recovery!”
Of course you don’t. It hasn’t reached you yet. And until it does reach you, there is no impact on your lifestyle. Might I, therefore, humbly submit that where this is no personal impact, it’s just as if there is no recovery. This is what Philips meant when he said that there is “an economic backdrop which remains difficult for the customer.”
Or, as the sage of the ages, Yoda, might say, “Recovery? There is no recovery. There is only impact.”
Come back an talk to me at a later time, once I get my chesterfield back. I’m still picking splinters out of my backside.
