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UPDATE 2-Morrison's eyes new growth avenues in tough market

Published 09/09/2010, 02:45 AM
Updated 09/09/2010, 02:48 AM

* To trial convenience stores in H1 2011, assessing online

* H1 underlying profit 410 million stg vs forecast 409 mln

* H1 like-for-like sales ex-fuel/VAT up 0.9 percent

* Sees low market growth in H2; to meet its FY expectations

(Adds analyst, more detail, background)

By Mark Potter

LONDON, Sept 9 (Reuters) - Wm Morrison Supermarkets, Britain's fourth-biggest grocer, will open convenience stores and may sell groceries online as it seeks to broaden its growth avenues in what it expects to remain a tough market this year.

New Chief Executive Dalton Philips said on Thursday the group would test a convenience store format in the first half of 2011, was assessing whether to sell groceries online and would expand food production -- a key differentiator from its rivals.

It also forecast low market growth to continue in the second half of its fiscal year, as it met forecasts with a 14 percent rise in first-half underlying profit to 410 million pounds ($634 million).

RBS analyst Justin Scarborough said the strategic plans made sense and could eventually help Morrison's to close its share price discount against many of its rivals, though he thought the stock could initially suffer from only "in line" results.

Morrison's has outperformed bigger rivals Tesco, Asda J Sainsbury in terms of sales growth for the past few years as it recovers from the botched acquisition of Safeway in 2004 and customers respond to its mix of low prices, fresh food counters and innovative promotions.

But some analysts are concerned the turnaround has played out and Morrison's lacks the diversity of its rivals, which have expanded into often faster-growing areas like non-food and online retailing, smaller stores and financial services.

Sales at Morrison's shops open over a year, excluding petrol and VAT sales tax, rose 0.9 percent in the six months ended Aug. 1, signalling a pick up from a 0.8 percent increase in the first quarter, but towards the bottom of analysts' expectations.

Britain's retailers are struggling in an uncertain economic recovery and fear steps to rein in government debt, like higher taxes and public spending cuts, could hit consumer demand.

Home Retail, Britain's biggest household goods retailer, said on Thursday full-year profits would be in the bottom half of the range of analyst expectations, while music and books group HMV reported a plunge in quarterly underlying sales in the UK and Ireland.

Morrison's, which runs over 400 stores, said it was confident of meeting its full-year profit expectations and lifted its interim dividend 14 percent to 1.23 pence a share.

Its shares have lagged the STOXX Europe 600 retail index by 9 percent over the past year. They closed at 292.5 pence on Wednesday, valuing the company at 7.7 billion pounds. (Editing by Mike Nesbit and David Holmes) ($1=.6463 pounds)

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