UK's Morrisons blames political uncertainty for growth slowdown

By James Davey

LONDON (Reuters) - British supermarket chain Morrisons missed quarterly growth forecasts, blaming political and economic uncertainty, and warned that the next three months face comparison with last year's strong summer.

Morrisons has also agreed to a temporary reduction in automation distribution capacity with online partner Ocado after a fire destroyed one of its Customer Fulfilment Centres in February.

Shares in Morrisons, which trails market leader Tesco, Sainsbury's and Walmart's Asda in annual sales, were down 0.5 percent at 1046 GMT on Thursday, extending losses for the past year to 12 percent.

The group said that like-for-like sales, excluding fuel, rose 2.3 percent in the 13 weeks to May 5. That compared with analyst expectations for 2.5 percent and was also short of the previous quarter's 3.8 percent growth.

Like-for-like retail sales rose 0.2 percent while wholesale sales were up 2.1 percent, with online retail sales growth of 0.4 percent suggesting the contribution from stores was negative.

"Along with Kantar (industry) data, these are early indications that Morrisons is starting to underperform its peers," said Bernstein analyst Bruno Monteyne.

Finance chief Trevor Strain pointed out that Morrisons has achieved 14 straight quarters of like-for-like retail growth while group turnover has increased by more than 1 billion pounds in three years.

“Q1 has had some testing features, the consumer backdrop in the run-up to Easter was quite challenging in the sense (of) confidence and uncertainty created by the Brexit debate,” he said.

However, Tesco last month said it had not seen any discernable change in buying behaviour in the early part of the year, while official data has shown British consumer spending was robust in the run-up to the expected Brexit date of March 29.

There have been some signs of slowing growth in supermarket sales, with the British Retail Consortium industry body saying that food spending rose by 1.7 percent in the three months to the end of April.

Yet Morrisons cautioned that second-quarter numbers will face tough comparisons with a year earlier, when sales were boosted by hot summer weather and the soccer World Cup.

Prior to the update analysts' consensus forecast for 2019-20 was an underlying pretax profit of 435 million pounds ($566.3 million), up from 406 million pounds in 2018-19.

OCADO CHANGES

Morrisons' agreement to allow Ocado access to its capacity at the Erith Customer Fulfilment Centre (CFC) in southeast London is because of the fire that destroyed Ocado's CFC in Andover, southern England.

Morrisons will return to Erith in 2021. In the meantime, it intends to grow its online business by accelerating plans for online orders to be fulfilled with products direct from its stores.

Ocado will no longer be Morrisons' exclusive digital partner, allowing Morrisons to pursue other partnerships, such as its existing wholesale deal with Amazon.

Monteyne estimated that cost savings from the changes will boost Morrisons' profit by "mid to high single-digit" millions of pounds.

(Reporting by James Davey; Additional reporting by David Milliken; Editing by Kate Holton and David Goodman)