May 10, 2018 / 6:31 AM / 2 months ago

UPDATE 2-Morrisons quells fears over Sainsbury's-Asda with robust trading

* Beats forecasts with Q1 underlying sales up 3.6 pct

* “Striking a chord” with consumers says CEO

* Declines comment on speculation of bid for Sainsbury’s

* Declines comment on speculation of closer link with Amazon

* Shares rise as much as 3.3 percent (Adds detail, CEO, analysts’ comment, shares)

By James Davey

LONDON, May 10 (Reuters) - Morrisons, Britain’s No. 4 supermarket chain, beat forecasts for quarterly sales, helping to subdue fears that it could be the major loser from Sainsbury’s proposed 7.3 billion pound ($10 billion) takeover of Walmart’s Asda.

Sainsbury’s, the UK industry’s No. 2, merging with Asda, the No. 3, would be a major challenge for Morrisons.

While Morrisons would become No. 3 it would be about a third of the size of Sainsbury’s-Asda and Tesco, the current market leader.

However, Morrisons Chief Executive David Potts said Thursday’s robust first quarter numbers showed his strategy was delivering for stakeholders. Morrisons shares rose as much as 3.3 percent.

He declined to comment when asked by reporters if Morrisons, which has a UK market share of 10.5 percent, would consider its own bid for Sainsbury’s or seek a relationship with Amazon beyond an existing wholesale deal that has been running for about two years and going well.

He also declined to comment when asked if Morrisons would be interested in buying Sainsbury’s-Asda stores if Britain’s competition regulator clears the deal on condition of significant store disposals.

“You can see from the numbers that the approach the company’s taking – colleague-led, customers onside, re-connecting the business with its core and then becoming more relevant to more people in Britain - appears to be striking a chord,” said Potts, a former Tesco executive who joined Morrisons in 2015 to lead a recovery after it was badly damaged by the rise of discounters Aldi and Lidl and the strategic errors of previous management.

“So we’re very confident in the year ahead,” he said.

Bradford, northern England, based Morrisons said group like-for-like sales, excluding fuel, rose 3.6 percent in the 13 weeks to May 6, its fiscal first quarter - ahead of analysts’ average forecast of 2.8 percent and a tenth straight quarter of growth.

Like-for-like sales increased 1.8 percent in both its retail and wholesale operations, with the former boosted by the launch of a new “Savers” own label range and the later benefiting from the roll-out of a deal with convenience chain McColl’s .

Morrisons said its expectations for the 2018-19 year were unchanged.

IN CONTROL OF OWN DESTINY

“These are a strong set of results that will help to quell short-term worries over Morrisons’ position in the market versus Tesco and Sainsbury’s-Asda,” said Bernstein analyst Bruno Monteyne, who has an “outperform” rating on the stock.

Shares in Morrisons, up 12 percent so far this year, were up 5.7 pence at 251.3 pence at 0823 GMT, valuing the business at 5.9 billion pounds.

Prior to Thursday’s update analysts were on average forecasting a 2018-19 underlying pretax profit of 400 million pounds, up from 374 million pounds in 2017-18.

House broker Shore Capital raised its forecast to 410 million pounds.

“Morrisons is a group that is increasingly in control of its own destiny, robustly positioned for any Asda-Sainsbury combination,” said Shore Capital analyst Clive Black.

Sainsbury’s-Asda’s proposed deal, if cleared by regulators, is not expected to complete until the second half of 2019.

Analysts say Morrisons could also benefit from the distraction of the deal to Sainsbury’s and Asda’s operations in the intervening period. ($1 = 0.7375 pounds) ($1 = 0.7375 pounds) (Editing by Sarah Young and Adrian Croft)

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