Coles rocks status quo as sales spike

October 25, 2012
The Age

Wesfarmers said like-for-like sales at its Coles supermarkets grew 3.7 per cent in its fiscal first quarter as it increased sales volumes and prices of fresh fruit and vegetables strengthened.

That beat average market forecasts for 3.4 per cent growth, according to a Reuters survey of six analysts, and compared with growth of 2.3 per cent at top rival Woolworths.

Total sales at Coles were up 4.2 per cent to $8.4 billion on the corresponding period last year, with food and liquor sales rising 4.9 per cent to $6.6 billion.

On a comparable basis, which strips out the effects of new stores, food and liquor sales rose 3.7 per cent.

‘‘Pleasing transaction and volume growth was achieved in the period, ahead of sales growth, as Coles continued its focus on improving product quality, service and value,’’ Wesfarmers managing director Richard Goyder said.

Australian retailers in general have been forced to deeply discount and accept shrunken profit margins as consumers respond to economic uncertainty and falling home and share market values by freezing spending.

‘‘Our customers are as focused on value now as they have ever been, with consumer sentiment still slow to recover to levels seen last year,’’ Coles managing director Ian McLeod said.

Food-and-liquor price deflation was 3.2 per cent in the first quarter, driven by a price war as Coles competes with Woolworths.

Both chains, which control more than 70 per cent of the grocery market, have slashed the cost of basic items such as food, milk and meat to win foot traffic.

Coles, which has now had food and liquor price deflation for 12 of the last 13 quarters, said a rise in fresh produce prices would slow price deflation through the course of the year.

First-quarter sales at Wesfarmers’ home improvement chain Bunnings rose 2.5 per cent at stores open more than a year, while discounter Target saw same-store sales fall 4.1 per cent as it reduced the price of toys.

Discounter Kmart had a 2.2 per cent increase in sales.

‘‘We like the effort in Coles but think the turnaround in Target is taking too long,’’ said Peter Esho, analyst at Citi Index.

‘‘We think the share price will struggle to maintain a rally above A$35 per share until the other pieces of the pie fall into place.’’ The stock closed Wednesday at A$34.60, off a March low of A$28.25.

In its coal business, Wesfarmers agreed an average 26 per cent drop in prices for its metallurgical coal exports as a slowdown in demand from Asian buyers bites.

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