Morrison Beats Estimates as Potts Brings Stability to Grocer

(Bloomberg) -- Wm Morrison Supermarkets Plc reported estimate-beating results and said savings and cash flow targets will be exceeded as the U.K. grocer starts a revival under Chief Executive Officer Dave Potts.

The retailer is “still in the foothills” of its recovery plan, Potts said on a conference call Thursday, about 18 months after the former Tesco Plc executive was hired to fix a business ravaged by a loss of customers to discounters Aldi and Lidl.

The first-half results showed that progress is being made. Underlying pretax profit rose 11 percent to 157 million pounds ($208 million). Second-quarter same-store sales growth of 2 percent was the strongest of any major U.K. supermarket since 2014. The shares rose as much as 7.4 percent in London, the most since January.

“We had pretty hefty expectations, and they were beaten across the board,” James Grzinic, an analyst at Jefferies, said in a note.

Morrison’s fightback comes as some of the industry’s recent success stories start to see their progress falter. Same-store sales at the upscale Waitrose chain fell 1 percent in the first half, though have since turned positive, owner John Lewis Partnership Plc said Thursday. Sales growth is also easing at the discounters, industry figures show.

Morrison said it expects to exceed a 1 billion-pound three-year cost-saving target by the end of the financial year. A target to generate 2 billion pounds of cash from operations in three years will also be beaten six months ahead of plan, it said.

The shares were up 7.2 percent at 207.6 pence at 9:07 a.m. in London. They’ve gained 40 percent this year, after four straight annual declines during which they more than halved.

Amazon Accord

After halting sales declines in Morrison’s supermarkets during his first year in charge, Potts is seeking growth in other areas to mitigate the damage of a U.K. grocery price war. By renegotiating a distribution agreement with Ocado Group Plc, Morrison can now seek online customers in more remote parts of the U.K. The company is also using its food production facilities to supply produce for Amazon.com Inc’s fledgling U.K. grocery business.

The accord with Amazon “improves our supermarkets and helps us be more efficient,” Potts said on the call.

The increase in same-store sales marked the third consecutive quarter of growth. Business was boosted by price cuts on more than 4,500 lines, product improvements and improved availability, Potts said. Sales of a revamped range of ready meals rose 9 percent.

“The new team has made a real difference and delivered further good progress across the board in the first half,” Chairman Andrew Higginson said in a statement. “Prices are lower, customers are being served better and quality is improving.”

Earnings beat the median analyst estimate of 149 million pounds compiled by Bloomberg.

To contact the reporter on this story: Sam Chambers in London at schambers7@bloomberg.net. To contact the editors responsible for this story: Matthew Boyle at mboyle20@bloomberg.net, Paul Jarvis