Momentum in the sales battle between Coles and Woolies moved firmly in favour of Coles after Woolworths (WOW) reported a surprisingly weak set of first quarter figures yesterday.
Woolies sales figures, especially for the core supermarkets business, were the weakest for over four years.
And general merchandise sales went backwards again for yet another quarter, and Woolies revealed a slowing in sales growth in the Masters hardware chain, a worrying development for the retailer which is already under pressure for spending close to $2 billion on the hardware foray.
As a result investors took a set against Woolworths sending the shares down 4% and more at times. The shares closed at $34.24, off 4.9%.
WOW vs WES 6M – Woolies falling behind Coles
In fact the country’s biggest retailer first quarter sales growth fell behind the growth reported last week by arch rival Coles.
Woolworths said trading was softer in August and September, with growth crimped by the timing of promotional activities and the cycling of higher fuel discounts in fiscal 2014 (which is a bit of furphy because it was not responsible for the sharp slowdown in sales growth in food and liquor).
Woolworths said sales rose 3% to $16.15 billion in the three months to October 5, the slowest rate of quarterly growth in more than four years, as lower petrol volumes and weak general merchandise sales added to weakening growth in food and liquor.
Wesfarmers said its retail sales grew 4.6% in the first quarter.
Same-store sales in the Australian food and liquor business rose 2.1% – the lowest rate of growth since the fourth quarter 2013 – compared with 2.5% in the first quarter 2014.
Woolworths’ Australian food and liquor same-store sales fell short of market forecasts between 2.8% and 3% and were less than half the 4.3% at Coles in the September quarter.
Including new stores, total sales from Woolworths’ Australian food and liquor rose 3.9 per cent to $11.0 billion.
Petrol sales fell 4.5% to $1.8 billion and were down 6.1% on a comparable store basis.
Petrol volumes fell 5.2% after Woolworths agreed to curtail excessive fuel discounts in December last year. The slide in world oil prices played the major part though in the fall in petrol sales, even if volumes were down.
In general merchandise, total sales slipped 0.4% to $1.1 billion and same-store sales fell 4.1%, making eight consecutive quarters of negative same-store sales growth.
Woolies Big W chain is now the company’s weak point (apart from the still developing Masters hardware chain), just as general merchandise chain, Target is Wesfarmers weakest link.
Woolies CEO, Grant O’Brien told analysts “Our sales were below expectations and we didn’t deliver the consistency in growth we’d been looking for.”
Sales growth slowed in the core Australian food and liquor business, compounding a fall in petrol volumes and general merchandise sales at BIG W, while sales at Masters stores open more than a year went backwards.
"While first quarter sales were lower than expected, we are confident that our trading plans will improve momentum in the second quarter, which includes the key Christmas period," said Mr O’Brien.
"We’ve returned a result today that we can do better on and our plans through to Christmas reflect that," he said. "We have seen an uptick in trade in October but we still have a way to go."
Mr O’Brien said there no need to revise the company’s guidance for 4% to 7% net profit growth this year.
Trading conditions were even weak in the retailer’s hotel and gaming division, where total sales slipped 1%per cent to $399 million and like for like sales by 1.7%, hit by the impact of higher Victorian gaming taxes, which came into effect from May.
In the loss-making home improvement division, sales rose 20.7% to $472 million, the slowest rate of growth for more than a year, as the group cleared surplus stock at Masters. Masters sales rose 30.8% to $238 million and Home Timber and Hardware sales rose 12% to $234 million.
Woolworths said no new Masters stores were opened during the quarter as the retailer slows the hectic expansion rate to try and stabilise sales growth.
The purchase of Hudson Building Supplies, which owns 10 sites in NSW and five in Queensland, and the purchase of Belmont Timber (one outlet in Victoria) was completed at the end of the quarter.
The company’s New Zealand Supermarkets’ sales for the quarter were $$1.5 billion, up 1.1% in NZ dollars the previous year (5.6% increase in AUD).
Comparable sales for the quarter fell 0.1% impacted by inflation remaining flat and continued subdued grocery industry market conditions, Woolies said in the statement.
