A focus on low prices, promotions and fresh foods helped Wm Morrison Supermarkets to defy the gloom surrounding retailers and post third-quarter sales growth ahead of its main rivals.

Chief executive Dalton Philips said on Thursday there was no sign of a let up in the pressure on shoppers, who are seeing disposable incomes squeezed by rising prices, muted wages growth and government austerity measures.

A third of customers at Morrisons, which has most stores in the less affluent north of Britain, have no money left over at the end of the month, he said, predicting a tough Christmas.

However, he said supermarkets were well placed to cope as Britons go out less and treat themselves more cheaply at home.

People will be trading more out of restaurants and pubs into the supermarkets, so that bodes well for the sector, Philips told reporters on a conference call.

Morrisons was in a particularly good position, following its launch of premium own-brand ready meal range M Kitchen, backed by partnerships with five top British chefs, he said.

Ready meal sales had leapt 60 percent since M Kitchen's launch, with top sellers including Nigel Haworth's Lancashire Hotpot and Aldo Zilli's Pizza Calabrese, he added.


Morrisons, Britain's No.4 grocer behind J Sainsbury, Wal-Mart's Asda and Tesco, said sales at stores open over a year rose 2.4 percent in the 13 weeks to October 30, excluding fuel and VAT sales tax.

That compared with 2.2 percent growth in the first half of its financial year and was towards the top end of analysts' forecasts, which ranged from 1.7 percent to 2.5 percent.

Best in class, concluded Credit Suisse analysts.

At 8:45 a.m., Morrisons shares were flat at 306.4 pence, better than a 0.8 percent fall in the STOXX Europe 600 retail index. The stock has outperformed that index by 28 percent this year.

Morrisons has outperformed larger rivals for several quarters, thanks in part to its lower exposure to discretionary non-food goods. It also thinks it is benefiting from producing more of its own fresh food than any of its rivals, and employing more specialist butchers, bakers and fishmongers.

Sainsbury's reported a 1 percent rise in underlying sales for the 16 weeks to October 1 and Tesco a drop of 0.7 percent for the 13 weeks ended August 27 -- their fiscal second quarters.

JP Morgan Cazenove analysts, however, said the good news was already priced into Morrisons shares, and the group still had to deliver on a number of initiatives in trials -- such as convenience stores and a drive to free up space in stores.

Morrisons said its outlook for full-year financial results remained unchanged.

Analysts on average expect profit before tax and one-off items of 925 million pounds, up from 869 million the year before, according to ThomsonReuters I/B/E/S Estimates.

(Editing by Jane Merriman)