UK supermarket Morrisons beats forecasts with strong Christmas

Morrisons raised its profit forecast on Tuesday after new ranges and revamped stores helped Britain’s fourth biggest supermarket beat expectations for Christmas trading with its strongest underlying sales performance for seven years.

Led by a new management team, Morrisons showed it was getting to grips with the turmoil sparked by the advance of German discounters Aldi and Lidl, bringing hope to rivals Tesco and Sainsbury's, which report in coming days.

The news sent shares in Morrisons up 4.2 per cent, while market leader Tesco leapt 5 percent and Sainsbury’s rose 2.4 per cent, with the three big supermarkets sitting at the top of the FTSE 100 leaderboard at the open.

The group said sales at stores open over a year, excluding fuel, rose 2.9 per cent in the nine weeks to January 1st, the bulk of its fourth quarter, ahead of analysts’ average forecast of 1.1 per cent growth and a third-quarter rise of 1.6 per cent.

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The group said it now expected a 2016-17 underlying profit before tax to be ahead of consensus in the range £330-£340 million, up from analysts’ average forecast of £326 million and the £302 million reported in 2015-16.

Former Tesco executive David Potts joined Morrisons as CEO in March 2015 with a remit to revive the group after it suffered badly at the hands of Aldi and Lidl in its northern England heartland.

He has reversed a loss of customers by cutting prices, improving the quality and availability of its products and raising standards of customer service to deliver a 55 percent rise in the firm’s shares in 2016.

All three of Britain’s quoted major supermarkets are expected to report solid Christmas trading following a recovery in 2016 that coincided with a slowdown in sales growth at the two big German discounters.

But share price gains may be limited in 2017 as analysts fear a rise in inflation will hit consumer spending and profit margins.

“This sets up the group well for the industry headwinds of 2017, including a more stressed consumer and input price pressures,” analysts at Jefferies said.

“Balance sheet strength, free cash conversion, trading momentum and valuation all make Morrisons the best positioned UK grocer, in our view.”

Reuters