November 6, 2018 / 7:14 AM / 8 days ago

Morrisons' run of sales growth hits three years

LONDON (Reuters) - Morrisons (MRW.L), Britain’s No. 4 supermarket group, took its run of quarterly sales growth to three years on Tuesday, driven by its wholesale business, though the rate of increase slowed after a summer bonanza, sending its shares lower.

A Morrisons supermarket is seen in Weybridge, Britain August 19, 2016. REUTERS/Peter Nicholls

The stock, up nearly 19 percent this year prior to the third quarter update, fell as much as 6.5 percent as Morrisons’ sales, though still robust compared to rivals, undershot analysts’ average forecast.

The Bradford, northern England-based grocer said total like-for-like sales, excluding fuel, rose 5.6 percent in the 13 weeks to Nov. 4 - below analysts’ mean forecast of 6.1 percent and the previous quarter’s 6.3 percent. The second quarter, helped by hot weather, the soccer World Cup and a royal wedding, was the company’s best sales performance in nine years.

“The like-for-like (sales growth) we’ve reported in the quarter with strong volume growth, we’re happy with that,” finance chief Trevor Strain told reporters.

“What the analysts forecast is a matter for them, not for the company,” he added, noting their average forecast for 2018-19 pretax profit had increased by about 4 percent to 409 million pounds ($534 million) since the start of the year, compared with the 374 million pounds made in 2017-18.

Retail like-for-like sales growth in the third quarter was 1.3 percent. Wholesale growth was 4.3 percent.

Monthly market share data indicate Morrisons has traded strongly relative to its big four rivals - market leader Tesco (TSCO.L), Sainsbury’s (SBRY.L) and Walmart’s (WMT.N) Asda. Like them, though, it is losing ground to German discounters Aldi and Lidl.

“Sales are still heading in the right direction, but it’s the wholesale business holding growth up. Selling goods to the likes of McColl’s newsagents and Amazon is lower margin, so doesn’t feed through to the bottom line quite so well,” said Hargreaves Lansdown analyst Laith Khalaf.

TURNAROUND

Chief Executive David Potts, a former Tesco executive, has been leading a turnaround at Morrisons since 2015, after it was damaged in its northern England heartlands by the rise of Aldi and Lidl and previous management mistakes.

Potts has introduced more competitive prices, improved product ranges and availability, as well as better customer service in refurbished stores.

He has also overhauled Morrisons’ online strategy through a renegotiated agreement with distributor Ocado (OCDO.L) and struck wholesale supply deals with Amazon (AMZN.O), McColl’s (MCLSM.L), Rontec, MPK Garages and Sandpiper.

Morrisons is unique among its major competitors in making half of all the own brand and fresh food it sells.

In April, Sainsbury’s agreed a 7.3 billion pounds takeover of Asda, a move that could leapfrog Tesco to become industry No. 1 and leave Morrisons about a third of the size of both Sainsbury’s-Asda and Tesco. The deal is currently being assessed by the competition regulator.

Reporting by James Davey; Editing by Keith Weir and Mark Potter

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