Woolworths sales fall short of forecasts as Coles extends lead

Woolworths stock slides after its 4th consecutive quarter of negative comparable sales saw Coles extend its winning streak.

Woolworths has delivered a meagre 0.4 per cent lift in local food and liquor sales for the third quarter, falling short of market forecasts and placing further pressure on its beaten down share price.

The struggling retail giant said its Australian food and liquor division recorded $10.7 billion in sales, up 0.4 per cent on the corresponding period last year but down 0.9 per cent on an Easter-adjusted comparable basis.

This compared unfavourably to analyst expectations of a 0.7 per cent drop in comparable sales.

It represents the fourth straight quarterly decline in comparable sales for its core food and liquor division and the 27th consecutive quarter of underperformance compared to key rival Coles, which delivered comparable sales growth of 4.9 per cent in the third quarter.

The news drove Woolworths stock sharply lower in morning trade, but it recovered some ground in late trade after the Reserve Bank cut rates to a new record low.

At 3.45pm (AEST) the firm was trading down 0.54 per cent at $22.13, underperforming against a broader market gain of 2 per cent.

The performance gap between Coles and Woolworths is now the biggest it has ever been, with the gap between comparable quarterly sales growth now standing at 5.8 per cent.

It is the biggest outperformance by Coles over Woolworths since Wesfarmers bought Coles for more than $20 billion in 2007.

Woolworths’ performance was impacted by a 2.4 per cent slide in prices as competition on cost intensifies in the grocery sector.

The firm intends to further ramp up its attempts to claw back customers based on improved pricing, with $150m of investment on price flagged for the second half of 2016.

“The sales performance in Australian supermarkets continues to be impacted by high levels of deflation, predominantly from our price investment,” Woolworths chief executive Brad Banducci said.

“It will be a three to five year journey to rebuild Woolworths Supermarkets, but we are confident we are on the right track.”

Woolworths is currently in the midst of a company-wide review as performance in its other divisions also shows signs of weakness.

The firm indicated the review would particularly target its general merchandise division, which is failing to gain any traction.

Its general merchandise division — driven by the Big W retail brand — saw sales slide 4.6 per cent to $865m, while its hotel division sales climbed 2.5 per cent to $368m and New Zealand supermarkets revenue rose 3.8 per cent to $NZ1.6bn ($A1.47bn).

“Following poor summer trading, we currently expect a small loss in General Merchandise in FY16 as we aggressively clear unproductive summer and current season winter stock,” Woolworths said in a statement.

Overall group sales weakened 0.3 per cent to $14.9bn.