The market has not really been buying into Morrisons’ recent run of form, but yet another very impressive trading statement that has beaten expectations comfortably could turn the tide of opinion. Eight straight quarters of sales growth, yet by yesterday's close shares were last trading c8% off the highs last February.

Shares rose c4% in early trade today as it seems some shorts have been forced to throw in the towel and finally buy into David Potts and co’s strategy, which is clearly paying off.
Group like-for-like(LFL) sales excluding fuel were up 2.8% in the ten weeks to Jan 7th 2018. Even more impressive was the peak Christmas trading period sales, which were up 3.7% over the last six weeks against very strong comparators. Online is performing solidly too, with sales growing over 10%.
There is more growth being contributed by wholesale where, as previously noted, there is a good capital-light growth lever for Morrisons that the market may have overlooked. Wholesale contributed 0.9% to group growth in the six weeks over Christmas (0.7% in the ten-week period). With the failure of P&H, the wholesale business heads into the New Year in fine shape and with good options. This had an impact for sure on the figures - management notes that the strong performance was helped by supplying some tobacco to McColl's earlier than initially planned. But this should not detract from the future earnings potential it can deliver.
We’ve previously commented on the uplift from the tie-up with Amazon, which offers future capital light growth potential alongside other initiatives such as the Morrison Daily forecourt outlets.
But this remains a tough and competitive space to operate in. Focus now is on Sainsbury’s after the positive report from Morrisons.
As I explained in yesterday's note:

"Sainsbury’s is coming at this from a more challenged perspective after profits slid 9% in the first half. If retail is about margins, Sainsbury’s has a big worry – arguably more of a concern than its chief rivals – after it reported that retail underlying operating margin declined by 58 basis points year-on-year to 1.89 per cent (2016/17: 2.47 per cent) in H1.

But sales are rising sharply as it integrates Argos into the business. As the costs of integration roll off the uplift from higher sales should start to feed through to the bottom line. The core grocery business has lost some appeal and appears to be squeezed on several fronts. While discounters are the chief concern, Sainsbury’s has struggled ever since Tesco got its house in order under Dave Lewis. SBRY has recovered some 7% or since the November lows and expectations remain fairly low with consensus for the retailer to lag Tesco and Morrison’s in terms of sales growth."

Interestingly enough SBRY rose c2% in early trade today - partly on the read across from Morrisons and partly on Kantar data showing Brits spent £1bn more over Christmas than last year, with Sainsbury's reportedly seeing 2% sales growth in the 12 weeks to the end of December.

Topps Tiles

Topps Tiles shares jumped a further 9% in early trade following the Q1 trading update that confirmed the group has returned to like-for-like sales growth. The stock had already rallied firmly following November’s update when management revealed that revenues in the first eight weeks of the new financial year were up 3.2% on a LFL basis. TPT is now trading up c40% from the Nov lows.

Today the company confirmed LFL sales rose 3.4% in Q1, a strong performance amid what remains a challenging market. CEO Matthew Williams is pleased but is (wisely) retaining his ‘prudent view of market conditions for the year ahead’.

A slower property market and falling real wages left home improvement retailers like Topps Tiles in the mud last year. In October after a bruising year the firm had to warn on profits because of the tough market conditions.

In spite of some improvement in trading in the final quarter, market conditions were seen as challenging and profits were guided to be at the lower end of market expectations. Shares had already taken a battering after the first half performance and by November they were down more than 40% from the May peak. In the end like-for-like sales for the year to the end of September fell 2.9% year-on-year, while profits fell 15%. 

The big question is whether last year's LFL sales slide was merely a blip or something more structural. The market is buying into the return of LFL sales growth but this remains a tough market.


Group sales for the Christmas trading period increased by 3.2%, but were up a healthy 4.1% on an underlying basis. Against some pretty tough comparisons last year, the core Majestic Retail division delivered a 1.3% rise in like-for-like sales. Golden child Naked Wines delivered a 13% rise in sales but Lay & Wheeler and Majestic Commercial weighed.

Shares slipped a touch with the firm failing to upgrade its forecasts. WINE has already risen almost 50% from the lows of last summer so a lot of the good news has already been baked in.

Retail calendar:

Sainsbury (J) plc (SBRY)
Shoe Zone plc (SHOE)
Supergroup (SGP)
Ted Baker (TED)
Quiz plc (QUIZ)

AO World plc (AO.) (BOO)
Booker Group plc (BOK)
Marks & Spencer Group plc (MKS)
Moss Bros Group plc (MOSB)
Tesco plc (TSCO)
John Lewis and Waitrose Christmas trading update

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