Morrison sales top forecast

By Mark Potter

LONDON (Reuters) - Wm Morrison (MRW.L), Britain's fourth-biggest grocer, beat third-quarter sales forecasts on Thursday and said it had agreed to buy 38 stores from the Co-operative Group for 223 million pounds.

Morrison, which serves 10 million Britons a week from about 375 stores, said sales at shops open at least a year, excluding fuel, rose 8.1 percent in the 13 weeks to November 2, topping analysts' average forecast of 7.1 percent in a Reuters poll.

Sales were boosted by strong demand for the group's innovative promotions, with around 250,000 shoppers buying its Sunday lunch for four people for 4 pounds and 230,000 switching to its Indian meal deal from restaurants and takeaways.

Britons are curbing spending at a time of sliding house prices, rising unemployment and fears of recession and switching to grocers, like Morrison, associated with cheaper prices.

Morrison's strong performance contrasts with the 2 percent rise in underlying third-quarter UK sales reported by industry leader Tesco (TSCO.L) on Tuesday, although that figure was held back by customers switching to Tesco's discount brands range.

Morrison, also one of Britain's top-five food manufacturers, said trading was set to remain tough and welcomed a 1 percentage point cut in interest rates from the Bank of England.

"We all know how tough it is for the consumer," Finance Director Richard Pennycook told reporters. "Any incremental steps that can help ease that situation must be positive."

Merrill Lynch analysts said Morrison's performance was impressive, but already factored into the group's shares, which trade at 15.1 times forecast earnings, above industry leader Tesco (TSCO.L) on 12.2 times, according to Reuters data.