May 4, 2017 / 6:25 AM / 3 months ago

UPDATE 2-UK supermarket Morrisons' turnaround gaining momentum

4 Min Read

* First-quarter group like-for-like sales up 3.4 pct

* Sixth consecutive quarter of underlying sales growth

* Says saw some inflation in period (Adds detail, CEO, analyst comment, shares)

By James Davey

LONDON, May 4 (Reuters) - Morrisons, Britain's fourth-biggest supermarket chain, said on Thursday its turnaround was gaining momentum as it attracted more customers, enabling it to beat forecasts and report a sixth consecutive quarter of underlying sales growth.

The company, based in Bradford, England, said it served over half a million additional customers a week in its first quarter, a year-on-year rise of 4.6 percent.

"That's more customers buying more from Morrisons as we continue to make improvements across the whole shopping trip," Chief Executive David Potts told reporters.

A former executive of market leader Tesco, Potts joined Morrisons in 2015 tasked with reviving the group after it was badly damaged by the rise of discounters Aldi and Lidl in its northern England heartland.

He has delivered a steady improvement in trading, helped by more competitive prices, improved product ranges and availability and better customer service, resulting in a 27 percent rise in the company's shares over the last year.

He said the first quarter was also boosted by better execution of the key events of Valentine's Day, Mother's Day and Easter, expansion of premium and healthy eating ranges and the extension of its Nutmeg brand into womenswear and baby and child accessories.

"The biggest and most important thing for confidence within a retailer is momentum in the sales line," said Potts. "We're on the right track."

Morrisons said group like-for-like sales, excluding fuel, rose 3.4 percent in the 13 weeks to April 30. That topped the 1.8 percent growth expected by analysts on average and growth of 2.5 percent achieved in the previous quarter.

Shares in Morrisons reversed early gains to be down 0.5 percent at 237.7 pence at 0906 GMT, reflecting some concern over the inflationary outlook.

Morrisons said there was some inflation during the period, as imported food prices were affected by the weaker pound. However, Chief Financial Officer Trevor Strain said Morrisons' inflation was "significantly less" than the 2.6 percent reported for the sector by Kantar Worldpanel on Wednesday.

On Wednesday Britain's No. 2 supermarket Sainsbury's reported a third straight year of profit decline and said the market was challenging with non-food sales vulnerable to reduced consumer confidence and a marked slowdown in real pay growth.

"While Morrisons' performance is noteworthy, it still operates in an extremely difficult trading environment ... rising prices and its eventual impact on consumer spending does pose a challenge for the sector," said Himanshu Pal, vice president of researcher Kantar Retail.

Morrisons said its expectations and guidance for 2017-18 were unchanged.

Prior to Thursday's update, analysts' average forecast for 2017-18 underlying pretax profit was 371 million pounds ($477.8 million), up from 337 million in 2016-17, which marked the first rise in five years.

Morrisons has a long way to go to reach previous profit levels. It made 935 million pounds in its 2011-12 year.

"There's a whole lot more to do," said Potts. (Editing by Jason Neely and David Evans)

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