Seymour Pierce has reduced its target price for supermarket giant Morrisons from 250p to 230p and retained its 'reduce' rating for the stock following a 'disappointing' Christmas.

"Despite soft comparables, Morrisons has had another difficult Christmas showing that management's more aggressive promotional strategy has not resonated with customers," said analyst Kate Calvert on Monday morning.

"Its fresh focus has perhaps taken the offer too far away from its traditional value roots and failed to carve out a differentiated niche," she said.

Morrisons continued to underperform the industry in the six weeks to December 30th, with like-for-like (LFL) sales excluding VAT and fuel down 2.5% (-2.2% including fuel). Calvert said: "This compared to Q3 LFL run-rate of -2.1% (-1.3% inc fuel), our expectation of a fall of 0.5% and a more pessimistic new whisper number of down c2.5-2.8% over the last week."

While the company said that profits should be in line with consensus estimates this year, Calvert said that this implies another downgrade.

"More importantly, the failure of a sales recovery despite soft comparables is more concerning for FY14 and it is becoming more inevitable that profits will decline again year-on-year," she said.

The broker has reduced its full-year 2013 (ending January 31st 2013) profit before tax forecast by 1% to £880m and its 2014 estimate by 8% to £850m.

Calvert concluded: "We believe the food industry outlook will remain challenging in 2013/14 as inflation comes back and consumer budgets stay under pressure. Morrison is scale disadvantaged and will struggle to perform in this scenario.

"We believe increased margin investment will be needed in FY14 as its current strategy is not working, in addition to planned investment in convenience and on-line non-food where Morrison is behind its peers."

Despite the disappointment, shares were up 0.27% at 257.6p in morning trade.

BC

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