SUPERMARKET chain Wm Morrison said its Scottish stores were performing well as the company defied City expectations by securing a small tick-up in profits for the first half of its financial year.
Bradford-based Morrisons made an underlying pre-tax profit of £445 million for the six months to July 29, up 1% on last year, but cautioned that pressures on consumer spending could continue well into next year.
Finance director Richard Pennycook said: "There are parts of the country where there are challenges. There are parts of the country that are doing extremely well.
"It is not simply a case of a north-south divide. Scotland is a very strong area for us and we continue to perform very well up there."
Chief executive Dalton Philips said: "It is going to be tough for the next six months and probably well into next year."
The company said cash-strapped shoppers are increasingly opting for own-brand items.
Like-for-like sales, those at stores open for a year or more, fell 0.9%, excluding petrol and value added tax.
Some analysts have warned that its strategy of focusing on fresh food and a revamped store offering, trialled in locations including Anniesland in Glasgow and Livingston, was alienating its traditional working class customer bases.
Nevertheless, while posting profits some £11m higher than expected, Morrisons was rewarded with a 4% rise in its share price, which closed up 12p at 292.7p.
Mr Philips announced an acceleration of the company's move into convenience stores but said it would cut its store expansion plans.
It expects to save £100m this year and next year by cutting its new space target by 200,000 square feet to 500,000 square feet in the current year and by a further 300,000 square feet in 2013/14, to 900,000 square feet.
Mr Pennycoock said: "It is not cost cutting. It has not been forced on us. It is a conscious choice."
It is keen to expand its estate of M Local convenience stores in London, which are to be supported by a dedicated distribution centre in the capital.
Morrisons is Scotland's third largest supermarket chain with 57 stores. The company has been trailing a new format in 45 stores and said sales there were 4-6% ahead of its existing outlets.
These stores have bigger fruit and vegetable ranges, less space for processed foods and a more open-plan feel so that customers can see its butchers, bakers and fishmongers in action. Morrisons hopes to have introduced the new format to 100 stores by the end of the year, accounting for around 30% of its sales.
Mr Philips also announced the company is to start selling wine over the internet, but expressed caution about expanding into online grocery sales.
It is also seeking to compete with increased use of vouchers by its rivals by offering its own at till voucher system where discounts are offered based on what the shopper has bought.
Many in the City remain to be convinced by its approach. Philip Dorgan, analyst at Panmure Gordon, said: "We appreciate Morrisons still has significant self-help; however, we expect lower sales will impact margins. Morrison's numbers could have considerable downside risk."
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