Dampener at Morrisons looks bleak for grocers

Morrisons sent a chill down the aisles of the grocery sector with festive sales growth below City expectations, as it warned of another "tough year" ahead for consumer spending.

The Bradford-based grocer has boasted of "outperforming" the sector as recently as November, as it has done over much of the past six years, but today said its 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 shifting to Sainsbury's, which is expected to deliver similarly anaemic underlying growth of 0.4% on Wednesday.

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 up to 2%.

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

However, according to Nielsen data, Asda and the discounters, Aldi and Lidl, enjoyed a far better Christmas, while Waitrose said it grew underlying sales by 3.8%. Morrisons posted lacklustre like-for-like sales, excluding petrol and VAT, up by 0.7% over the six weeks to 1 January, which was lower than consensus forecasts of 1%.

Clive Black, analyst at Shore Capital, said: "We deem such a performance to be disappointing."

Morrisons' growth was down by more two thirds on the 2.4% rise posted over the quarter to 30 October.

Dalton Philips, chief executive, described its performance as "solid" and the supermarket's guidance for its full-year pre-tax profits remained unchanged.

The City expects the grocer to grow its underlying profits by 6% to £924 million for the year to 30 January. The group also reaffirmed its commitment to its £1 billion share buyback over the next two years, which it unveiled in March, adding it had invested £316.6 million so far. Total sales at Morrisons rose by 2.9% over the six weeks and by 5.6%, when revenues at its petrol forecourts are included.

The grocer touted "record" customer numbers of an extra 800,000 shoppers a week during the period to 11.5 million. But Philips said consumers continued to put one item fewer in their basket, adding: "They are having to make compromises". This was reflected in sales of sparkling wine soaring by 156%, while champagne tumbled by 7%.

Richard Pennycook, 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 converting them into its Kiddicare maternity brand.

The shares rose 2.2p to 313.5p.