Morrison Sales Recovery Picks Up as Potts Revival Takes Hold

  • Grocer reports second consecutive quarter of sales growth
  • CFO expects deflation to persist for rest of financial year

Wm Morrison Supermarkets Plc reported its second consecutive quarter of sales growth, signaling that Chief Executive Officer Dave Potts has stabilized the business after a four-year slump.

Same-store sales rose 0.7 percent in the 13 weeks ended May 1, the U.K.’s fourth-largest grocery chain said Thursday. That beat the median estimate of 16 analysts for a 0.2 percent increase.

Potts is battling against food price deflation that has squeezed profit margins across the industry for the last two years. Since starting just over a year ago, the CEO has sold Morrison’s unprofitable convenience outlets and focused on providing customers with lower prices and better service in the chain’s larger stores. On a comparable basis, sales volumes rose 3.3 percent in the first quarter.

Morrison’s sales momentum is “shaping up in a healthier fashion than elsewhere in the industry,” James Grzinic, an analyst at Jefferies, said by e-mail.

Morrison shares rose 1.9 percent to 191.1 pence at 8:10 a.m. in London. The stock has been among the best performers in Britain’s FTSE 100 Index this year, rallying 29 percent.

A price war sparked by the growth of discounters Aldi and Lidl means it’s harder for U.K. grocers to translate sales increases into higher profit. Price cuts and lower commodity costs have saved customers money for two consecutive years, something that J Sainsbury Plc CEO Mike Coupe described this week as unprecedented during his 30 years in the industry.

Morrison expects deflation “to be persistent in our business,” Chief Financial Officer Trevor Strain said on a call with reporters. “We expect to still be investing to improve the competitive position of the company for the rest of this financial year.”

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