Woolworths lifts sales growth but still trails rival Coles

Woolworths has posted the first positive comparable sales growth in its supermarkets for more than a year.

A welcome improvement: Woolworths CEO Brad Banducci. Pic: Adam Yip

Woolworths has secured its first positive comparable sales growth at its core supermarkets unit for more than a year, but continues to trail the growth recorded by key rival Coles.

For the 14 weeks to September 30, Woolworths’ total food sales lifted 1.7 per cent to $9.3 billion, while comparable sales were up 0.7 per cent.

The figure represents the 29th straight quarter of underperformance on the comparable sales figure compared to Coles, but also shows signs of progress in its five-year turnaround plan as the gap narrows significantly.

For the first quarter, Wesfarmers’ (WES) Coles said on Wednesday it had recorded comparable sales growth of 1.8 per cent, extending a slowdown from 2.8 per cent and 4.9 per cent in the prior two quarters.

In contrast, Woolworths (WOW) has seen its fortunes improve, with comparable sales falling 1.1 per cent and 0.9 per cent in the prior two quarters before recovering 0.7 per cent in the September quarter.

“We made good progress during the quarter on our five key priorities and are seeing far more consistency in our trading performance in Australian food,” chief executive Brad Banducci said.

“Customers continue to respond to the improvements we are making, with Australian food delivering its first positive comparable sales growth since Q2 2015, despite ongoing material price deflation.”

Mr Banducci said the results were a welcome improvement, but its trade through the second quarter would prove the true test of its turnaround momentum.

“While we are pleased with our progress, there remains much more to do. Our trading performance over the key Christmas trading period is crucial to the financial performance of the Woolworths Group in FY17,” he said.

The retailer has endured a torrid run over the past few years as Coles streaked ahead while it was bogged down with a failed foray into the hardware sector with its Masters joint venture.

However, the results show momentum picked up through the quarter as the group had told analysts midway through that comparable sales were tracking up a more modest 0.3 per cent.

The retailer appeared particularly aggressive on price with deflation of 1.9 per cent recorded through the quarter, noticeably higher than Coles’ 1 per cent reading. Woolworths has recently focussed intently on price in the meat section, informing investors today it had continued to “absorb significant cost price inflation” in this space.

Woolworths also updated investors on its high-profile exit from the home improvement sector, saying the reduction in Masters’ stock was on track.

“The sale of Masters’ inventory is proceeding well, assisted by GA Australia and KordaMentha,” the group said.

Heavy discounting at Masters hurt Bunnings through the first quarter, with growth at the Wesfarmers-owned hardware business slowing significantly.

The numbers were not rosy for Woolworths at its troubled Big W discount department store arm as sales slid 5.5 per cent to $880 million, with comparable sales off 5.7 per cent.

The soft figures marked a modest improvement in the rate of decline after an 8 per cent drop last quarter, with heavy discounting at the heart of the weakness.

“Comparable sales were impacted by significant SKU reduction and clearance activities in deleted lines as well as a reduction in the number of unprofitable promotions,” Woolworths said.

Deflation in the division increased to 3.7 per cent, compared with 3.1 per cent in the prior quarter, highlighting the extent of the promotional activity.

“Looking forward, we expect modest improvement in apparel sales in the offset the deflation and strategic clearance activity that will continue throughout FY17, impacting sales momentum and margins,” the company added.

“As a result, we do not currently anticipate an improvement in FY17 EBIT compared to FY16.”

Elsewhere, the group’s comparable New Zealand food sales weakened 0.7 per cent, while petrol sales slipped 11 per cent as prices tumbled over 13 per cent.