Returning shoppers, rising sales puts smile on face of Morrisons

The group said like-for-like sales ​rose​ 0.7​ per cent​ in the ​13 weeks to May 1, which is the second consecutive quarter of growth after four years of disappointing trading.

After a year in the job, chief executive David Potts has managed to turn the ship around after years of mismanagement.

Mr Potts is attempting to return the Yorkshire retailer to its roots as a value grocer, offering quality food at low prices. He has closed unprofitable stores, cut the fat at head office with 800 job cuts, hired 5,000 extra store staff, got rid of the expensive vegetable misting machines.

Mr Potts said: “We are encouraged by progress across our six priorities. There is still much to do and our colleagues are working very hard to improve the shopping trip and save customers every penny we can.

“Customers are responding and satisfaction levels remain ahead of last year. We are, of course, pleased with a second consecutive quarter of positive​ like-for-like​ sales, which demonstrates our aim to stabilise trade is taking effect.”

The ​grocer’s resurgence comes after Mr Potts took the helm last year, following the removal of former boss Dalton Philips, and embarked on a number of changes in a bid to turn around the firm’s fortunes.

Clive Black, analyst at Shore Capital, said: “In a patient and methodical manner, Mr Potts has worked his way through a long ‘to do’ list. Store standards have been improved, product on offer has been enhanced, merchandising has been developed and customer service is better.

​“​Those price cuts alongside the broader instore package are helping Morrisons to compete more effectively.”

John Ibbotson at retail consultants, Retail Vision, said: “The once beleaguered grocer is finally moving in the right direction, although we should not hide from the fact that there is still a long way to go.

“The Amazon tie-up may have offered a psychological boost and Mr Potts’ strategy may be working but the discounters are still opening stores, food deflation is entrenched and Asda remains an ominous threat.”

​Asked whether he was worried about a price war threat from Leeds-based rival Asda, Mr Potts said: “It’s very important to keep an eye on the competition, but it’s equally important not to obsess about any of them. It’s important we obsess about our customers.”

“We are stabilising Morrisons and selling more things to more customers. It’s the first important step on the journey to fix, re-build and grow this company.”

In addition to cutting prices, Mr Potts has improved store standards, tailored products to local tastes and sharpened up marketing to differentiate Morrisons from its rivals.

The UK’s fourth largest grocer is unique among its major competitors in making half of all the own brand and fresh food it sells.

Shares in Morrisons, which were already up 10 per cent over the last three months, closed the day up 2 per cent at 192p.

Morrisons had been badly hurt by the rise of German discounters Aldi and Lidl and its profits have fallen for four years in a row.

But having posted a second consecutive quarter of positive like-for-like sales it is on course for profit growth in its 2016-17 year.

Analysts are forecasting an underlying pre-tax profit before one-off items of £318m, up from £302m in 2015-16.

Page One: Morrisons promises further price cuts

Morrisons’ 0.7 per cent increase in like-for-like sales was ahead of analysts’ forecasts of flat sales and ahead of the 0.1 per cent rise in the previous quarter.

The quarterly outcome was helped by a 1 per cent contribution from online, which is proving popular with customers.

Morrisons’ CEO David Potts said negotiations with Ocado to finalise a new online delivery agreement are continuing, but stressed the deal must deliver “profitable growth online for Morrisons”.

Morrisons’ like-for-like sales grew 3.1 per cent in the quarter, while volume growth was 3.3 per cent. Deflation, including the supermarket’s own price cuts, was 2.6 per cent.

Analyst Bruno Monteyne at Bernstein said: “Morrisons has delivered a healthy positive like-for-like sales growth of 0.7 per cent, although we would focus on the total sales decline of 1.8 per cent, which shows that Morrisons is the only listed food retailer still showing declining sales. It is trying to shrink to greatness. These results may get the market excited temporarily, but we would focus on the line ‘there is still much to do’.”