Morrisons expects tough year after flat festive season

Morrisons laid bare the extent of subdued trading in the grocery sector yesterday, unveiling festive sales growth below expectations as it warned of another "tough year" ahead. The supermarket boasted of "outperforming" the sector as recently as November, but yesterday said that sales growth was only "in line with the market".

The read-across from Morrisons is not pretty for its rival listed grocers, with the focus now shifting to Sainsbury's, which is expected to deliver similar anaemic underlying growth of 0.4 per cent tomorrow.

But the performance of the market leader Tesco the following day is forecast to be far worse, with its UK like-for-like sales expected to fall by 2 per cent, according to its joint house broker Deutsche Bank.

Richard Hunter, the head of equities at Hargreaves Lansdown, said that Morrisons "seems to have fallen foul of the wider economic environment, whilst the update does not bode well for Sainsbury's and Tesco".

Morrisons posted lacklustre like-for-like sales, excluding petrol and VAT, up by 0.7 per cent over the six weeks to 1 January, lower than consensus forecasts of 1 per cent.

The City expects it to grow underlying profits by 6 per cent to £924m for the year to 30 January.

Total sales at Morrisons rose by 2.9 per cent over the six weeks, excluding fuel. It touted "record" weekly customer numbers of 11.5 million.

Richard Pennycook, the finance director of Morrisons, said: "It is going to feel like a tough year."

Morrisons declined to comment on the potential acquisition of 11 "big-box" stores vacated by Best Buy. The grocer is eyeing them with a view to converting them into its Kiddicare maternity brand, which it purchased for £70m last year to launch into the non-food market online.

Meanwhile, the British Retail Consortium said like-for-like sales across the sector rose 2.2 per cent in December, reflecting the soft comparison with a snow-affected 0.3 per cent fall in the same month in 2010.