City Talk: Retailer predicts gloom

Wm Morrison says an upturn in commodity prices led to price rises in the third quarter, with aggressive market trading conditions continuing into 2011.

Like-for-like sales at the UK's fourth-biggest supermarket group increased by 1.3% (stripping out petrol sales). Total sales rose by 2.8%. The third quarter like-for-like sales growth compares with growth of 0.9% in the first half much in line with the overall market, according to City analysts.

Despite the expectation that the grocery market will remain in a slow growth mode, Morrisons expects to report double-digit earnings growth for the full year. City investment group Shore Capital analyst Clive Black has downgraded full-year sales expectations for Morrisons. Shore cut its forecast for second-half sales growth from 5.4% to 3.5%. It now anticipates total in-store sales growth of around 2% rather than the 3.9% it had been expecting.

Morrisons is still carrying out research into online grocery distribution. If the research throws up an inadequate return on investment, Morrisons will not make a move into the internet online retail market, it is reported.

The retailer's shares lost ground on the results, as did those of its grocery peers, Tesco and Sainsbury's, which both suffered a fallback.

Morrisons is also to train 1,000 homeless people as butchers, fishmongers and bakers. The retailer needs new staff because it is planning to roll out a raft of new stores, including a trial convenience store format. This will create over 10,000 jobs. Its new initiative to provide jobs for the homeless is being carried out in partnership with Create, a not-for-profit company, and the Salvation Army.

Underperformance in Tesco's UK sales

Analysts were also disappointed by Tesco's sales growth. Analysts at Evolution Securities cut Tesco's shares rating to 'sell' from 'reduce', but kept their 375p price target for the shares. Analysts commented: "Tesco's sales growth has underperformed its rivals for over a year, and as the UK still accounts for over 60% of group sales, this is a concern."

M&S reverses foreign stance

Marks & Spencer is planning to launch a second invasion of Europe a decade after its first ambitious European expansion. The decision in March 2001 to pull out of Europe is now seen as a strategic mistake.

Dealers speculate that M&S has made a tentative approach to El Corte Ingls, the Spanish retailer. Its last dealings with El Corte Ingls were back in 2001, when it sold nine shops to the group.

M&S is also said to be negotiating the buy-back of some of the French stores it handed over to Galries Lafayette when it pulled out of Europe. The retailer still has 320 shops in Malta, Hong Kong and Shanghai.

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