Strong sales at Morrisons drive up profit forecasts

Wm Morrison yesterday issued its strongest set of sales figures since its problematic takeover of Safeway two years ago, sparking a rally in its shares and a raft of profit upgrades.

Bob Stott, who hands over the chief executive's post to Heineken's Marc Bolland next month, said: "We're cautiously optimistic that we're going very, very much in the right direction."

In the 25 weeks to 23 July, like-for-like sales at Morrisons rose 4.6 per cent excluding petrol, putting the group ahead of target just weeks into a three-year recovery programme, instituted after it botched the integration of Safeway.

Shares in the group closed up 7.25p at 213p after the sales increase beat expectations.

Citigroup, Morrisons' broker, said the consensus profit forecast was likely to rise by more than 10 per cent from £215m to £240m- £250m. The broker said it estimated that Morrisons was "confident" of achieving more than half of its targeted 90 basis-point gross margin improvement over the next three years "this year alone".

Mr Stott said it was "very satisfying" to hand the company over to Mr Bolland, who starts work on 4 September, with so much momentum behind its sales.

"A lot of things are coming together that say we've hopefully turned the corner and are driving the business forward. When you get momentum it's amazing how it helps to carry you forward," he said.

The company said underlying growth had come from all parts of its business, including its original Morrisons stores, which had gone into reverse during the Safeway conversion programme. Total sales decreased by 2.2 per cent excluding fuel, after it shrank down and sold off stores.

Mr Stott said "word of mouth and advertising" was drawing people to the converted stores. "People like what they see. They are buying more own-label and more fresh produce, which is helping the gross margin," he said.

The sales rebound did not convince everyone in the City. Philip Dorgan, at Panmure Gordon, thought the group was lagging the sector. He warned that Morrisons would need to invest more in its prices in the second half to respond to price cuts made by Tesco.