Shares in supermarket giant, Woolworths Ltd bounced around yesterday as investors struggled with the third quarter sales update.
The shares rose initially to a day’s high of $26.88, up 1.4%, then eased back to the days low of $26.60 which was up 7c from Friday’s close, then retraced back to $26.81 in afternoon trading as they digested the sales report which showed a 5.1% rise in third quarter sales to $13.56 billion.
Woolies shares fell again towards the close ending up 19c at $26.72.
Helping the market sort out the report was the reaffirmation of the full year profit guidance that was cut with the interim sales update in February.
Also helping the market was the stronger performance in its food and liquor business in the quarter than in the second quarter which is concentrated on the normally very strong Christmas season.
With retail sales improving in January and February (when they rose 0.5%, for an annual rate in the four months to February of almost 4%), its clear that talk of a moribund retail sector should be ignored.
Woolies had better sales growth in its key supermarkets businesses in the latest quarter, while BigW and the electronics chains, Dick Smith, Tandy and Powerhouse all lifted their game, compared with earlier in the year.
As a result it now looks as though the market is confident the retailer will not have to cut earnings guidance again this financial year.
Woolworths said sales for the 13 weeks to April 3, 2011, came in at $13.56 billion, up 5.1 per cent from the prior corresponding period.
Adjusted for Easter (it partly fell in the third quarter last year), sales rose 5.6% for the quarter ending April 3.
"Sales overall, increased 5.1%. Adjusting for Easter, which was partly included in last year’s results, sales increased by 5.6%.
"Despite the continuing deflationary effects across our businesses and the disruption caused by various natural disasters, this represents an improving sales trend compared to the first half increase of 4.0%, particularly in all of the Australian businesses," retiring Woolworths chief executive Michael Luscombe said in the statement.
At the half-year results presentation in February, Woolworths said it expected net profit after tax for fiscal 2011 to be in the range of 5% to 8% cent higher than the $2.02 billion achieved in 2010 year. That was cut from the initial guidance of a profit rise of 6% to 11%.
Woolies also said in the new guidance in February that earnings per share were expected to grow between 6% and 9%.
Yesterday the February guidance was reaffirmed.
"The negative impact of consumer confidence levels, inflation, interest rates and global economic conditions continue, Woolies said in yesterday’s statement.
"The market continues to remain competitive with a less confident consumer who is spending less whilst having a greater propensity to save.
"This combined with the uncertainty around the level of inflation going forward, the risks of future interest rate rises, and a continuing strong dollar provides a platform for a potentially subdued trading environment particularly in the discretionary sectors.
"As advised previously Woolworths will incur costs, not covered by insurance, associated with the NZ earthquakes and the Australian floods. While an estimate has been made for these costs in our profit guidance the final amount has not yet been determined.
"Subject to these continuing uncertainties Woolworths re affirms its guidance that NPAT is expected to be in the range of 5% to 8% and EPS growth for the full year of 6% to 9%," it said.
The key indicator of how Woolies is performing is its Australian food and liquor business which is the sales and earnings powerhouse for the group.
Woolies said in the statement that "Australian Food and Liquor sales for the third quarter were $9.2 billion, representing an increase of 4.6% (Q3 10: 3.8%) or 5.2% Easter adjusted (Q3 10: 3.3%), which compares to a 3.5% increase in the first half."
"In a highly competitive and challenging retail environment, we have increased our market share, customer numbers, basket size and items sold in the quarter.
"Trading continues to be impacted by tightened consumer spending with higher savings rates and higher interest rates, petrol and utility prices.
"Comparable store sales in Food and Liquor increased 3.3% in the third quarter (Q3 10: 2.0%) or 3.9% Easter adjusted (Q3 10: 1.6%), which compares to a 2.2% increase in the first half."
