Australia: Woolworths Sales Rise 10% on Groceries, Easter Demand

Woolworths Ltd., Australia's largest retailer, said third-quarter revenue rose 10 percent on gains in food and liquor market share and Easter demand at Big W discount department stores. Sales increased to A$11.6 billion ($10.7 billion) in the three months ended March 30 from A$10.6 billion a year earlier, Sydney-based Woolworths said in a statement today. Excluding Easter sales, revenue gained 9.8 percent, beating the 9.4 percent median estimate of four analysts Bloomberg News surveyed by telephone and e-mail.

Chief Executive Officer Michael Luscombe, who has won market share from second-ranked Coles Group Ltd. for three straight years, is weathering a slowdown in demand after the central bank raised interest rates twice in the quarter to the highest in 12 years. The company is refurbishing stores and increasing selling space for more profitable fresh produce to withstand a slump in consumer confidence.

"Woolworths is executing much better than Coles right now,'' said Grant Saligari, an analyst at Commonwealth Securities Ltd. in Sydney, who has an "accumulate'' rating on the stock. "The sales numbers are being helped by rising food inflation.'' Coles was acquired in November by Wesfarmers Ltd., Australia's biggest home improvement retailer, for A$18.2 billion in cash and stock.

Forecast Retained

Woolworths reiterated its forecast for annual sales to rise between 8 percent and 10 percent. Luscombe didn't change his February forecast for annual profit to rise as much as 23 percent, the third year in a row earnings will rise by more than a fifth.

"Woolworths' sales result confirmed that the company's real growth is moderating,'' Craig Woolford, an analyst at Citigroup Inc., said in a note to clients today. "Further market share gains will become more difficult and we believe the stock is fully priced,'' said Woolford, who rates the shares "hold.'' Woolworths shares were unchanged at A$28.70 at the 4:10 p.m. close of Sydney trading. The stock has dropped 16 percent this year compared with a 14 percent decline in the benchmark S&P/ASX 200 index.

Third-quarter sales from Australian food and liquor, its biggest unit, rose 9.3 percent to A$7.6 billion on new stores. Inflation for the quarter was 4.5 percent, accelerating from the 2 percent pace of the first half. Sales at Australian supermarkets open at least a year rose 7.3 percent. Adjusted for Easter, which occurred in the fourth- quarter last year, same-store supermarket sales rose 6.7 percent compared with analyst estimates for a 6.8 percent gain.

Store Design

Growth in groceries was the strongest since the fourth quarter of 2007, helped by store upgrades. Luscombe expects to convert 200 stores, or about a third of his supermarket network, to his new "2010'' format by the end of June after completing the refurbishment of 63 outlets in the first half. The changes include new lighting and signs, a redesigned fresh produce section to reduce inventory handling, and more shelf space for Woolworths-branded groceries.

"The strong momentum in the business has continued in the third quarter with further gains in market share,'' Director of Supermarkets Naum Onikul said in a statement. "Our accelerated refurbishment program is progressing well with improvements in both sales and gross margin in the stores that we have completed.''

Chocolate Eggs, Buns

The company adjusts growth rates for Easter by excluding revenue from seasonal items such as chocolate eggs, hot cross buns and camping equipment, which typically surge before the holiday period, Luscombe told a conference call today.
Fuel sales rose 20 percent to A$1.4 billion in the quarter. Woolworths attracts shoppers to its filling stations by offering a fuel discount of 4 cents a liter when they spend at least A$30 in its supermarkets.

New Zealand supermarket sales rose 4.2 percent to A$1.1 billion as the company lowered prices to win customers from market leader Foodstuffs N.Z. Ltd. Revenue at Big W discount stores rose 13 percent to A$879 million in the quarter as the company refurbished its stores and added more clothing and personal appliances.

"Big W has held up better than many would have thought, given tighter discretionary spending,'' said Commonwealth's Saligari. "That probably reflects the store refurbishment program and the effort they have put into repositioning that brand.''

Hotels, Pubs

Sales at the hotels unit rose 4.4 percent to A$263 million, compared with 14 percent growth a year earlier, amid smoking bans that curbed customer visits. The unit is Australia's biggest owner of pubs. The Victorian state government last week announced new licensing laws for slot machines from 2012, opening the way for Woolworths to take direct ownership of gaming assets it shares with Tabcorp Holdings Ltd. and Tatts Group Ltd.

The consumer electronics unit, which includes the Dick Smith and Powerhouse brands, increased sales 14 percent to A$356 million on demand for flat-panel televisions and new stores opening under its Croma joint venture in India with Tata Group. The Australian Woolworths isn't related to London-based Woolworths Group Plc, which was founded in 1909 as part of its U.S. parent's expansion, or Woolworths Holdings Ltd. based in Cape Town, South Africa.


Source: bloomberg.com

Publication date: 4/16/2008

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