Analysis: Morrisons have potential for more after springing surprise

Morrisons.
Morrisons.
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Morrisons are set to be considered one of the surprises of the season, in retail, and they achieved it without increasing basket size. That highlights the Yorkshire-based company’s potential to grow, according to retail analysts.

The group delivered a trading update on Tuesday morning, being the first of the major supermarkets to produce festive figures. Sales at stores open over a year, excluding fuel, increased 0.2 per cent in the nine weeks to January 3. That compared favourably to analysts’ forecasts and was a marked improvement from their third quarter decline of 2.6 per cent.

Retail analyst Clive Black said: “They have beaten our expectations and the market expectations. They are looking like being the biggest positive surprise of the festive period, maybe only with Debenhams.

The trading environment remains tough. Morrisons have toughed it out.

“The really good news is that they have attracted customers but the basket size has not gone up yet. They have got the opportunity to still increase the basket.”

The return of customers is shown with like-for-like transactions going up 1.3% in Morrisons core supermarkets. They had been tested by Aldi and Lidl, and cut prices.

Black added: “It’s really good for Yorkshire retail, for Morrisons and its shareholders, who have had a tough time. As they say, one swallow doesn’t make a summer - but at least there’s a swallow there.”

The spotlight had been on David Potts, the new chief executive, and Black feels that the improved trading performance “reflects marvellously” on him. Summarising the positive results, the retail analyst said that “most critically, Morrisons have gone back to what they are best at, in a modern context”.

The group forecast full year 2015-16 underlying profit before tax to be in the range of £295m to £310m before £60m of restructuring and store closure costs. The firm said it was entering into consultation to close a further seven supermarkets, which means that around 680 jobs are under threat. Morrisons has said it is taking this action “with regret” and that these branches are not profit-making.