Supermarket Morrisons makes progress with recovery plan

By James Davey

LONDON (Reuters) - The boss of Morrisons (MRW.L) said on Thursday he had achieved his first major objective since joining the British supermarket a year ago - stabilising the business.

"We are stabilising Morrisons and selling more things to more customers. It’s the first important step on the journey to fix, re-build and grow this company,” David Potts, a former Tesco (TSCO.L) executive, who joined Morrisons in March 2015, told reporters.

Potts has cut prices, improved store standards, tailored products to local tastes and sharpened up marketing to differentiate Morrisons from rivals.

Britain's fourth largest grocer is unique among its major competitors in making half of all the own brand and fresh food it sells.

Shares in Bradford, northern England, based Morrisons, already up 10 percent over the last three months, were up 2.1 percent by 0957 GMT.

"At a time when investors' attention is shifting to the long term implications of Amazon's (AMZN.O) market entry, Morrisons is more insulated than peers from this incremental attrition risk," analysts at Jefferies said in reference to the U.S. online giant's plans to attack Britain's grocery market.

Morrisons, which trails market leader Tesco, Sainsbury's (SBRY.L) and Asda (WMT.N) in annual sales, has been badly hurt by the rise of German discounters Aldi [ALDIEI.UL] and Lidl [LIDUK.UL] and profits have fallen for four years in a row.

RETURN TO PROFIT

But having posted a second consecutive quarter of positive like-for-like sales it is on course for profit growth in its 2016-17 year. Analysts are on average forecasting an underlying pretax profit before one-off items of 318 million pounds ($461 million), up from 302 million pounds in 2015-16.

Morrisons said sales at stores open over a year, excluding fuel, rose 0.7 percent in the 13 weeks to May 1, its fiscal first quarter.

That was ahead of analysts' forecasts of flat sales and a rise of 0.1 percent in the previous quarter which was its first quarterly rise in four years.

The quarterly like-for-like sales outcome was helped by a 1 percent contribution from online.

Morrisons' like-for-like transactions grew 3.1 percent in the quarter, while volume growth was 3.3 percent. Deflation, including the supermarket's own price cuts was 2.6 percent.

Last week, Morrisons lowered the prices of 847 items, including sugar, rice and cereals.

Echoing recent comments from Tesco and Sainsbury's it expects deflation to persist through 2016.

Potts surprised the market in March by announcing a wholesale supply deal with Amazon and agreeing the outline of a new deal with online grocer Ocado (OCDO.L) to serve its own morrisons.com online offering.

The CEO said Morrisons has made its first deliveries to Amazon. He said negotiations with Ocado to finalise a new agreement were continuing but stressed the deal must deliver "profitable growth online for Morrisons."

($1 = 0.6904 pounds)

(Editing by Greg Mahlich and Jane Merriman)