Wm Morrison delivers Christmas sales surprise with LFL rise

Morrison's delivered an unexpectedly solid Christmas trading update in a welcome turnaround under new chief executive David Potts.

Like-for-like (LFL) sales were up 0.2% in the nine weeks to 3 January, miles better than the 2% decline predicted by analysts, with LFL sales including fuel down 0.6% over the period.

Revenues were helped by LFL transaction numbers in core supermarkets up 1.3% on the same period last year and online grocery sales nearly doubling.

With deflation of 3.2% recorded, this implied same-store volume growth of nearly 3.5%, with the feeling that the stories are beginning to attract customers back.

Interestingly, industry data from Kantar Worldpanel on Tuesday showed the effect on group sales of store closures, with a 2.6% decline in sales over a 12-week period to 3 January.

Morrison's said it now expected full year 2015/16 underlying profit before tax to be in the range of £295m-£310m before the £60m restructuring and store closure costs.

"While there is of course much more to do, we are making important progress in improving all aspects of the shopping trip, and our customers tell us they are pleased with the changes," Potts said. "In addition, we have made further progress in debt reduction, and our financial position is strong and getting stronger."

Guidance for net debt was lowered to £1.65bn-£1.8bn, down from the £1.9bn estimate in November as Potts cost cutting saw roughly 800 head office roles removed since the start of the financial year plus some formerly outsourced teams, such as maintenance, now brought in-house.

Potts also announced seven further store closures, but said this would not form part of a larger programme of closures.

House broker Shore Capital noted that if Morrisons achieved the lower end of its new debt guidance and takes the upper end of original expectations, this would make for a positive swing of £450m.

After the unexpected LFL sales result, ShoreCap said: "We believe that this update has the basis to be the most surprisingly positive trading statement over the festive period in UK retailing."

It noted that the 0.2% came after a third-quarter run-rate of -2.6% and against a comparative figure from a year ago of a "reasonably favourable, albeit toughening" 3.1% decline for a six-week Christmas trading update.

Kantar's Fraser McKevitt said Morrisons decline in market share to 11% was expected as it "continues to feel the effects of recent store closures, and the retailer hasn’t repeated last year’s Christmas Bonus loyalty cash promotion".