Wm Morrison needs a good Christmas to prove strategy, says Shore Capital

6th Nov 2014 10:28

Shore Capital has retained a 'hold' rating for supermarket group Wm Morrison after a mixed set of third-quarter results, saying that it is "critical" that trading improves over the pivotal Christmas period.Morrison said on Thursday that like-for-like (LFL) sales in the 13 weeks to 2 November were down 6.3% excluding fuel, towards the bottom end of Shore's estimated range of minus 5.5%-6.5%.Nevertheless, the shares rose strongly, up around 8% at 175p in morning trade, given the improvement from the 7.4% LFL decline in the first half with the company saying its new Match & More loyalty card was proving "extremely popular" with customers.Items per basket fell 2.4% year-on-year during the third quarter, a significant improvement from the low of -6.9% in the fourth quarter of the previous year."Such a data point is encouraging albeit against the broader back drop it feels like clutching at straws; we continue to need to be convinced as to the likely effectiveness of 'Match & More', we should add," said Shore analysts Clive Black and Darren Shirley.On a positive note, the analysts welcomed better lower guidance for net debt and new narrower guidance for full-year profits.However, they said: "The business has entered a critical trading phase not just due to the Christmas period but because it trades against two years of negative LFL sales; the comparative for [the previous year] is minus 5.7%."It is essential that the group trades much more robustly in the current quarter and then displays more evidence than it is currently showing that its trading strategy is striking a much stronger chord with British shoppers. There are plenty of headwinds and bumps in the road facing Morrison's albeit a brighter future may yet transpire for its beleaguered investors."