Market worried about Woolworths sales

Analysts are concerned about upcoming Woolworths sales, following yet another strong quarter from rival retailer Coles.

New Woolworths Supermarkets CEO Brad Banducci at Woolworths in Bella Vista Sydney, after the supermarket announced a 1 Billion dollar loss. Pic Brett Costello

Analysts have expressed concern about the upcoming sales results of embattled retailer Woolworths, after key grocery rival Coles delivered another strong quarter.

On Thursday, Wesfarmers reported a 5.9 per cent jump in sales at its Coles-led food and liquor business, with its momentum seemingly unaffected by aggressive price competition which resulted in deflation of two per cent.

The development helped pull the stock of Wesfarmers up 2.8 per cent on Thursday, but investors didn’t miss the potential impact on Woolworths, which slid 1.1 per cent in a rising market.

The latter has been battling to regain its footing in the nation’s grocery market after enjoying a golden period through the 1990s and early 2000s.

Woolworths has been looking to stem the market share bleeding by launching a price assault on its competition, but the Coles report suggests it is having a muted impact.

Coles has been so dominant in recent years that it has outperformed Woolworths for the last 26 quarters, a figure that appears certain to rise to 27 after its latest showing.

“Against a more challenging market backdrop, Coles reported a 4.4 per cent lift in like-for-like sales (Easter adjusted) suggesting share pressure continued at Woolworths,” UBS said in a report.

“Recent data points and our channel checks suggest trading remains challenged, and that there could be further deterioration this quarter.”

UBS had tipped a 0.3 per cent dip in like-for-like sales at Woolworths ahead of the Coles results, but now sees downside risks that could drag like-for-like sales down 1.3 per cent if there has been no moderation in market share loss rates.

“Pleasingly, however, cultural issues do appear to be bottoming, but are not improving, which is what we would like to see before having confidence in a turnaround,” UBS added in its report before maintaining a sell recommendation and $20 price target.

Research from Macquarie is similarly grim, with analysts also noting “further downside risks” given the extent of price deflation at Coles.

Woolworths results are due out on May 3.

At 10.45am (AEST), Wesfarmers stock had given back some of yesterday’s gains, dipping 1.1 per cent to $41.73, while Woolworths was off 0.3 per cent at $21.71.

Woolworths stock is down 10 per cent year-to-date and has served as the biggest drag on the ASX200 outside of the big banks.