Morrison Supermarkets ups profit forecasts after bumper Christmas

On the back of its strongest festive performance for seven years, Wm Morrison Supermarkets said it now expects full year profit to be ahead of market consensus.

For the nine weeks to 1 January, the supermarket group grew like-for-like sales excluding fuel 2.9%, which would if nothing untoward happens in the rest of the month would represent the fifth consecutive quarter of growth in LFL sales.

Total sales were 2.0% higher, in spite of the impact of store closures made by chief executive David Potts as he has turned around the underperforming grocer.

For the full year to the end of January, the FTSE 100 company estimated that it will produce underlying profit before tax within a range of £330-340m, versus the Vuma consensus of £326m.

Sifting through the sales data, online sales contributed 0.6% to the LFL figure for the nine-week period, while transaction numbers grew 5.2% though basket size fell. Including fuel, group LFL sales grew 4.7% and total sales were up 4.0%.

"This Christmas we made further improvements to the customer shopping trip," Potts said. "We stocked more of what our customers wanted to buy, more tills were open more often, and product availability improved as over half of sales went through our new ordering system."

He told reporters that price deflation was 0.2% over Christmas versus 1% in previous quarter as some food prices rose.

Investors were impressed, with the shares up 3.5% to above the 245p level for the first time since early 2014.

Sector rivals Tesco and Sainsbury are due to report later in the week, but were also lifted by encouraging grocery data from Kantar Worldpanel.

Analyst George Salmon at Hargreaves Lansdown said Morrison's tills were ringing thanks to its 'price crunch' cuts made last year.

"That must be music to the ears of David Potts, who has steered the group to a much more positive position than during the dark days of the last few years," he said.

"With the group enjoying a record week at morrisons.com, and a new automated ordering system helping to improve efficiency by lowering stock levels while still increasing availability, it seems to be finally feeling the benefit of technological advances too."

John Ibbotson, director of the retail consultancy Retail Vision, was impressed with the numbers and said deflation was a key issue for Morrisons, as the falling pound may also hurt the Bradford-based group less than its rivals, as a high proportion of its food is produced in the UK.

"Having already fired the first shot in the 2017 price war, it's out of the blocks with a robust set of numbers," he said. "It's a turnaround that is looking more impressive by the day and the discounters are finally being reeled back in. They're suddenly looking human and are only really taking market share by opening stores.