WM Morrison Supermarkets PLC (LON:MRW) beat analysts’ forecasts as it notched up another quarter of like-for-like sales growth in the opening three months of its fiscal year.
Excluding fuel, group like-for-like sales were up 3.6% compared to a year ago, with the supermarket’s retail and wholesale jointly responsible for the rise.
That marks a pick up from the 2.5% and 2.8% growth seen in the two prior quarters, while it is also ahead of the 3.4% like-for-like growth the retailer enjoyed in the same quarter a year ago. Analysts had been looking for 2.8% growth.
Discounters pressuring margins
Volume growth also accelerated in the first quarter, while inflation – a key issue for supermarkets in recent years – was broadly flat.
Margin pressures are likely to still worry investors though, with the UK’s fourth-largest grocer saying in today’s update that it once again took measures to “improve our competitiveness”.
Morrisons, along with the other members of the Big Four, has had to cut its prices to deal with the threat of the rapidly-growing German discounters, Aldi and Lidl, whose value proposition is attracting more and more customers.
READ: Morrisons shares reverse as margins fall
The chain has also been revamping its stores and trialling new ways to improve customer service to keep shoppers happy.
Wholesale business ramping up
Away from the retail arm, the group’s wholesale business is starting to pick up.
Last year, Morrisons signed a deal to exclusively supply all 1,650 McColl’s stores with around 400 of Morrisons’ Safeway-branded products as well as other branded items.
READ: McColl's deal adds much-needed scale
It is currently adding 25 McColl’s stores a week to its supply list as it ramps up to full capacity, and the FTSE 100 company said it remains on track to hit its target of £700mln of annualised sales by the end of the year, and £1bn “in due course”.
No mention of Asda-Sainsbury’s tie-up
While the threat of the discounters has been well-documented, Morrisons could soon be facing big competition from two of its Big Four rivals.
J Sainsbury plc (LON:SBRY) and Walmart-owned Asda announced last week they were in discussions over a possible £7.3bn merger, but there was no mention of this in Morrisons’ trading update today.
Although Morrisons would move up to become the UK’s third largest supermarket chain, the tie-up would pose some challenges as it would be about a third the size of both Tesco and Sainsbury’s-Asda.
City analysts reckon it might not be all bad news though, suggesting that Morrisons would be well-positioned to snap up any stores if regulators tell Sainsbury’s-Asda to reduce their store footprint.
READ: Exane downgrades MRW to 'neutral'
Others have suggested that Morrisons could take advantage of the distraction caused by the bid before it formally completes, or that Morrisons could become a takeover target itself.
Morrison’s shares rose 2.4% to 251.1p at the opening bell on Thursday.
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