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Positive quarterly sales result but Woolworths not out of woods

Glenn Freeman  |  02 May 2017Text size  Decrease  Increase  |  

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Australia's largest supermarket retailer's 3Q17 sales figures show momentum has held up, with its core food division up 5.6 per cent to $9.2 million, from $8.8 million in the same period 2016.

 

"We are pleased with the progress we have made on our key priorities, with the strong sales growth in Australian Food during the quarter a particular highlight," said Brad Banducci, group CEO, Woolworths (ASX: WOW).

However, he flagged subdued results for the second half, due to "the financial impact of higher investment in key areas, cost price increases, and our response to ongoing competition and promotional intensity".

Morningstar equity analyst Johannes Faul said the result is positive, with Woolworths having posted its strongest quarterly sales  in recent years to beat forecasts.

However, he noted these results have been achieved through cost-cutting and investing--measures which are readily replicable by Woolworths' competitors in the space, most notably Wesfarmers (ASX: WES) along with the likes of Aldi and Costco.

Woolworths' discount apparel business Big W saw sales decline by 8.6 per cent in the third quarter. Adjusted for the Easter period, total sales declined by 6 per cent and comparable sales fell 5.7 per cent, which was in line with first half 2017 falls of 6.3 per cent.

Management pointed to apparel clearance activities as a key driver of Big W's deflation, along with womenswear, though is more positive on the Home category. The latest sales figures come as the group implements a new strategic plan and customer value proposition across Big W.

"We are still in the early stages of our turnaround and are focused on the many opportunities to further improve our business. Big W is a work in progress and its turnaround will be a multi-year journey ... we currently expect Big W to report a loss before interest and tax of $115 million to $135 million for second half 2017," Banducci said.

Across the group's other portfolio divisions, Endeavour Drinks Group--which runs liquor retailers BWS and Dan Murphy's--increased sales by 2.3 per cent year on year to $1.9 billion in the third quarter.

New Zealand Food sales increased 2 per cent on the previous year to NZ$1.6 billion.

Hotels sales for the quarter were $376 million, up 2.2 per cent on the previous year.

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Glenn Freeman is a Morningstar senior editor.

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