Woolworths shares were weak yesterday as investors moved away from defensive consumer staples and discretionary stocks towards growth and risk.
The justification for the shift was not only the better tone from Wall Street (after strong sales and profits from Apple) but what some local investors saw was a ‘weak’ set of first quarter sales numbers.
First-quarter sales across the retailer’s operations came to $13.4 billion, up 4.2% for the 14-week period on the same period of 2008.
But that growth rate was slower than in the first two quarters of this year, thanks to the boost from the federal government’s stimulus.
As a result Woolies shares fell 56 cents, to a day’s low of $29.96, before bouncing to end down marginally as the share price came back in the afternoon following a detailed look at the numbers, which showed sales maintaining their strength, and if anything, inflation easing in food prices.
The shares ended down 24 cents at $30.28, compared to the market’s 1.1% rise.
The falling price of petrol confused the story for some investors, in fact for quite a few.
Woolies pointed out in its comments that petrol dollar sales for the quarter fell 16.4% with the average selling prices well below their prior-year levels.
Petrol comparable sales fell 18.1% as a result, but volumes were up a strong 3.6% for the quarter, which should have told nervy investors the real story.
But excluding petrol, sales increased 7.4%, and with petrol included, total sales rose 4.2%.
The Australian supermarkets are the earning and sales heart of the group and there the performance was solid.
"Australian Food and Liquor sales for the quarter increased 7.8%," the company said.
"Comparable store sales in Australian Food and Liquor division for the quarter increased 5.8% (Q1 2009: 6.0%).
"Inflation in the first quarter was 2.1% (Q1 2009: 3.2%), significantly down on the 4.0% reported at Q4 2009.
"This sales result is a solid start to the financial year, reflecting our continued focus and investment to deliver value and enhance the customer experience," chief executive Michael Luscombe said in a statement on the results.
"Our continued focus on customers through investment in price, range, merchandise and quality as well as our 2010 store format and the commencement of our alliance with the Qantas Frequent Flyer program have all contributed to this sales result," the company said.
Including New Zealand and petrol sales, Woolworths’ supermarket division increased sales by 3.8% to $11.51 billion, with Australian food and liquor sales for the quarter previously mentioned up 7.8% to $9 billion.
New Zealand supermarkets rose 5.4% to $1.07 billion in Australian dollar terms.
Woolworths’ general merchandise division sales were up 7.9% to $1.6 billion.
BIG W sales for the quarter were $1.1 billion, up 5.8% (3.9% on a same store basis, down from 4.4% a year ago), and consumer electronics grew by 13.2% (up 6.5% in Australia and down more than 7% in NZ on a same story basis) during the first quarter to $462 million.
Mr Luscombe said discretionary spending would continue to be influenced by macro-economic factors and therefore consumer spending will be difficult to predict for FY10.
Woolworths said it is sticking with its full-year forecast given the impact of the volatile economic conditions on discretionary spending, the trailing off the federal government’s stimulus packages and increasing interest rates.
Woolworths’ pubs and clubs experienced flat sales and earnings, with hotel sales up 1% for the quarter to $303 million. Hotel comparable sales dropped 1.2% and gaming comparable sales fell 1.4%.
