Woolies lifts sales but still lags Coles

BLAIR SPEEDY
February 01, 2013
The Australian

THE checkouts of the nation’s supermarkets are ringing up big sales numbers, but the giants in the game, Woolworths and Coles, are having to claw for every dollar as customers demand ever-lower prices and deep discounts to part with their cash.

Woolworths yesterday reported sales of $10.3 billion for the December quarter, up 4.8 per cent from the same period a year earlier, or 2.5 per cent when the impact of new-store openings was stripped out.

It was Woolies’ third straight quarter of higher sales on a comparable-store basis, the benchmark by which most retailers measure performance, but it was not enough to break a 14-quarter losing streak against Coles, which on Wednesday reported a 3.9 per cent comparable-store sales gain for the December quarter.

Woolworths chief executive Grant O’Brien said the gains were hard won, with the company offering inducements such as 10c per litre fuel discounts to supermarket shoppers spending $100, and $20 gift cards for spending at least $100 on three separate shopping trips.

“I think all retailers, us included, had to work hard to make Christmas a success,” Mr O’Brien said.

“I don’t think consumers have woken up in December and suddenly feel completely confident again. There still is a level of lack of confidence in consumers and I think that will continue to be the case for some time.”

It was a sobering message for a sector that had been hoping the new year would bring a change in fortunes from a 2012 marked by consumer gloom, price deflation and a slew of retailers falling into administration.

Mr O’Brien said consumers were still cautious overall, but “in a better place this year than they were last year”, and the federal election in September was expected to provide additional certainty to the retail sector.

“I’m looking forward to policies, hopefully from both sides of the fence, that are going to provide a bit more reason for confidence for our consumers and for businesses,” he said.

The company, which also owns the Big W discount department store chain, hardware group Masters and the Countdown supermarket chain in New Zealand, reported sale of $30.04bn for the first half of the financial year, up 4.8 per cent from the previous corresponding period, excluding the now-sold consumer electronics chain Dick Smith.

The only division to go backwards during the quarter was petrol, which saw volumes fall by 3.2 per cent as Coles doubled its standard 4c per litre fuel voucher offer to 8c, for supermarket customers spending as little as $30 — an offer that began in October and is set to run though Easter.

Woolworths also revealed a $66m writeoff related to the electronics business — on top of the $420m writedown it took against the asset last year — relating to the cost of inventory purchased in the lead-up to Christmas, prior to the handover on November 26.

While analysts noted that it was usually the buyer who compensated the seller for inventory when a business changed hands, Mr O’Brien said Woolies did stand to collect an unspecified back-end payment when Dick Smith was eventually on-sold by its new owners, private equity firm Anchorage, which paid just $20m for the chain of more than 300 stores.

An additional $28m loss was booked on rental guarantees made by Woolies to Shopping Centres Australasia, its former property arm that was spun off into a separate listed vehicle in November.

Excluding these one-off items, Woolies has maintained guidance for full-year net profit growth of between 3 per cent and 6 per cent.
Its shares closed down 41c, or 1.3 per cent, to $31.24