November 2, 2017 / 7:18 AM / a year ago

Morrisons upbeat on Christmas as sales growth run hits two years

LONDON (Reuters) - Morrisons, Britain’s fourth largest supermarket group, said it was confident about prospects for the key Christmas trading period as it reported an eighth straight quarterly rise in sales, though the rate of growth slowed a little.

FILE PHOTO: Shopping trolleys are seen outside of a branch of the food retailer Morrisons in west London, Britain, January 7, 2017. REUTERS/Toby Melville/File Photo

Bradford, northern England, based Morrisons is turning around the performance of its more than 500 UK stores while also pursuing online and wholesale markets.

“We’re looking forward to our important fourth quarter, confident that we’ve become more competitive for customers,” Chief Executive David Potts told reporters on Thursday.

Britain’s consumers are being squeezed by high inflation and muted wage growth and face the prospect of a first interest rate rise in a decade on Thursday. On Wednesday, clothing retailer Next reported “extremely volatile” trading.

Morrisons said its like-for-like sales, excluding fuel, rose 2.5 percent in the 13 weeks to Oct. 29, its fiscal third quarter.

That compared with analysts’ forecasts for 2.1-3.1 percent but was down from growth of 3.4 percent and 2.6 percent respectively in the previous two quarters.

Shares in Morrisons were up at 0.2 percent at 1001 GMT, but have fallen 10 percent over the last three months, reflecting the slowdown in growth.

Analysts at Bernstein, which has a “market perform” rating on the stock, said that with grocery inflation running at 3.2 percent, according to the latest industry data, Morrisons’ numbers suggest it “is investing in price ahead of the market.”

Morrisons trails Tesco, Sainsbury’s, and Asda in market share. But it is currently the fastest growing of Britain’s “big four” supermarkets.

“During the quarter we again worked hard against the headwind of the weak pound on imported food prices, we grappled with food inflation to limit its impact on our customers,” said Potts.

Finance chief Trevor Strain said he was comfortable with analysts’ average forecast for 2017-18 underlying pretax profit of 371 million pounds, up from 337 million pounds in 2016-17.

Potts, a former Tesco executive, joined Morrisons in 2015 to lead a recovery after it was badly hurt by the rise of German discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL] in its northern heartland and mis-steps of previous management.

His strategy has focused on more competitive prices, improved product ranges and availability as well as better customer service in refurbished stores.

Potts has also overhauled the company’s online strategy through a renegotiated deal with distributor Ocado and struck wholesale supply deals with Amazon, Rontec petrol forecourts and the McColl’s convenience chain.

Morrisons also said it was extending its store-picked home delivery catchment area for online grocery in north east England.

Analysts at Redburn said extending store-picked delivery was much less profitable for Ocado than sales through its own network. They also noted the online contribution to Morrisons’ sales growth had slowed over the past six quarters.

They said Morrisons may slowly be moving away from Ocado’s delivery model. Ocado shares fell as much as 7 percent, but recovered to be down 2 percent.

Additional reporting by Helen Reid, Editing by Alistair Smout and Mark Potter

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