Morrisons said underlying profits for the 2014/2015 will be in the range of £325m to £375m, less than half the £785m recorded in the year to February 2.
Analysts at Jefferies said Morrisons was “getting the bazooka out”.
Dalton Philips, chief executive of Morrisons, who has been under pressure, said: "The strategy we are announcing today is a bold and comprehensive response to the fundamental structural changes that are taking place in grocery retail.
“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. At the same time we will exit non-core activities, significantly reduce our capital expenditure and deliver improved operating cashflow and return on capital employed.”
While focusing on cutting prices and improving its food ranges, Morrisons will sell-off non-core assets, including online baby equipment retailer Kiddicare. Morrisons said Kiddicare’s performance has been “disappointing” and took a £163m writedown on the business.
Mr Philips added: “I'm confident that Morrisons will emerge from this period of necessary change as a more focused, more distinctive value leader and well positioned to compete sustainably in the new grocery landscape.”
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