Morrison stops the rot in converted Safeway stores

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The Independent Online

WM Morrison shares shot up 15 per cent yesterday in spite of a deteriorating performance in the group's core business and continued poor trading in the shops that came with this year's Safeway acquisition.

WM Morrison shares shot up 15 per cent yesterday in spite of a deteriorating performance in the group's core business and continued poor trading in the shops that came with this year's Safeway acquisition.

The City warmed to news that those Safeway stores which have been converted to the Morrison's format so far showed an underlying sales growth of 13.0 per cent, compared with a 7.9 per cent decline in the unconverted stores. The supermarket chain also announced an acceleration in the rate of conversion, from three shops a week to four, meaning that almost the entire Safeway portfolio will have benefited from the makeover by the end of next year. Currently 41 of the 400 Safeway stores have been converted to the format, which involves lower prices and a more grocery-based range.

Sir Ken Morrison, the chairman, said: "The integration process is now complete. We are now concentrating on conversions ... we have achieved our objections."

Analysts attributed much of the rise in Morrison's shares yesterday to relief among investors that the company did not deliver another profits warning, following an earnings alert over the summer. The shares gained 28.5p to 222.75p. Traders said there was some covering of short positions from those who had expected bad news.

Rhys Williams, an analyst at Seymour Pierce, said: "Morrison's has weakened significantly while Safeway continues to be weak. It's a bit early to get this excited."

For the first half of the year, the Morrison's stores showed like-for-like sales up 8.9 per cent, for the six months to 25 July. However, in the following 10 weeks, these outlets saw the rate of sales increase slow to 4.6 per cent. The current year has seen the decline at unconverted Safeway shops remain at 7.9 per cent.

Paul Smiddy, an analyst at Robert W. Baird, said of the share price movement: "This is a grossly optimistic reaction. They [Morrison's] still have an awful lot of work to do."

Sir Ken said the Safeway stores that had been turned into Morrison's outlets were representative of the Safeway estate, adding that the remainder to come should show a similar improvement. He put the worsening of Morrison's own trading position in the second half of the year down to the fact that the company had sold some Safeway stores to competitors. He also said that rises in the price of fuel and in interest rates had made consumers tighten household budgets.

Sir Ken said: "A great amount has been achieved in the past few months which has illustrated what a good business Morrison's is and has convinced me of what a good deal the purchase of the Safeway business will prove to be."

See Jeremy Warner's Outlook

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