Woolworths shares finished 2% lower yesterday after the company revealed second quarter and first half sales that just missed some market estimates.
Second-quarter sales totalled $13.8 billion, missing estimates of $14 billion from analysts.
The shares fell 3% at one stage, before recovering slightly to end down 2.5% at $26.80, close to a six month low.
That was despite no change in earnings guidance from the company. Woolies is due to report interim profits late next month.
The lower than forecast sales figures though weren’t much of a miss when the company pointed out the lower than expected sales figures followed the impact of lower petrol and food prices in the quarter and December half.
It seems analysts underestimated the impact lower fuel prices had on petrol sales in the quarter and the half (they fell) and the impact of lower food price inflation in the December quarter.
For the 27 weeks to January 3, sales including petrol rose 4.2% to $27.2 billion, according to a statement by the company to the ASX
Excluding petrol, sales for the first-half were up 6 per cent, to $24.42 billion, the company said in yesterday’s sales report to the ASX.
Australian Food and Liquor sales for the half year were $18.1 billion, an increase of 6.8%.
Sales for the second quarter were $9.1 billion, an increase of 5.9% over last year.
Comparable store sales in food and liquor increased 4.8% during the half and 3.8% for the second quarter.
That was down on a year ago because of the decline in price inflation, which Woolies said fell to 1.6% from 4.1% in the last six months of 2008.
Petrol sales in the first half fell 9.5% to $2.8 billion, slightly offsetting gains in almost all other divisions, due the rise in the value of the Australian dollar offsetting a fall in prices a year ago.
A better indicator of how the petrol business went came with volumes up in the quarter and the six months because of the lower fuel prices.
The company attributed the sales growth in part to the federal government’s stimulus package last year.
"In Australia, this quarter’s sales result is a strong indication of the positive impact of the Australian Government’s first stimulus package in 2008, which underpinned high consumer confidence during the global economic downturn and helped to safeguard jobs across the retail industry,” Woolies’ chief executive officer Michael Luscombe said in a statement with the sales figures.
”Our General Merchandise and Hotels businesses achieved good sales levels as they also cycled the stimulus package in the prior year.”
The impact from the lower rate of inflation was even more noticeable in December with Woolies saying it hit just 0.4%, down sharply from the 5.3% in December of 2008.
The company said the lower levels of inflation reflect deflation in Produce and Perishables, and zero inflation in Liquor and Proprietary Bread.
The lower rate of inflation boosted the margin between inflation and comparable sales growth on the December 2009 half to 3.2% from 2.5% a year earlier.
In the December quarter the improvement was from 2.3% in the December 2008 quarter to 2.7% in 2009.
Woolies says it expects overall sales excluding petrol to continue to grow in the ”upper single digits” range.
"Earnings before tax and interest will also continue to grow faster than sales for the financial year, with net profit growth of 8 per cent to 11 per cent for the period, the company said, reaffirming earlier earnings guidance.
"The second half of the year will be impacted by low price inflation and the cycling of the government stimulus packages.
"Discretionary spending levels will continue to be influenced by macro-economic factors, such as interest rates, petrol prices, confidence around employment and consumer attitudes to spending.
"Subject to the extent of the impact of the factors above, we reaffirm the following guidance:
"We expect overall sales to grow in the upper single digits (excluding Petrol Sales) in FY10.
"We also expect that EBIT will continue to grow faster than sales in FY10.
"We also expect net profit after tax for FY10 will grow in the range of 8% to 11%," the company said in its statement.
So what did analysts think?
"Woolworths second-quarter sales results showed deterioration in growth in most divisions," Citigroup said in a note to clients.
"The weakness in sales is likely to continue in 2010 and will place pressure on Woolworths share price."
“The softness in Big W and Dick Smith reflects the stimulus last year really going into their heartland,” said Credit Suisse in Sydney.
“The benefits of the stimulus really went to the low to middle income consumer."
