Even though Woolworths (WOW) managed to at least match Coles’s sales growth (and perhaps top it on one measure), the market was unimpressed and sold off the shares by more than 2% in yesterday’s weaker market.
Investors seemed to be saying that the rapid run up in the retailer’s shares since late last year of around 15% was not justified by the actual sales performance reported.
Woolies shares fell to a day’s low of $36.90 yesterday morning before some bargain hunters appeared to push it up to $37.32, a fall of almost 2% or 70c on the day.
Woolies’ weakness spread to other leading retailers: Wesfarmers shares lost 0.7% after Tuesday’s 2% drop.
The shares of Woolies and other retailers recovered a bit in the afternoon with the rebound in the wider market after that pre-lunch wobble.
In fact the third quarter sales report while OK in most respects, like that from Coles on Tuesday, saw several brokers give it the thumbs down, with Citigroup saying the news made it reiterate its previous "sell" recommendation.
"The stock is trading at an elevated price/earnings ratio, with single digit earnings per share growth," Citi retail analyst Craig Woolford wrote yesterday.
"While Food & Liquor remains in a strong position, the periphery businesses will be a drag – Big W and Masters," he said in a note to clients.
WOW 1Y – Woolies’s 3rd quarter sales fails to justify its recent surge
Woolies said its March quarter sales rose 5.9% to $15.19 billion – exceeding retail sales growth at Wesfarmers and its group of chains, led by Coles supermarkets. Total sales from group’s continuing operations were up 5.3% (or 5.9% adjusted for Easter falling in the 4th quarter this year) to $15.192 billion.
Woolies told the market that solid gains in food and liquor in Australia and New Zealand offset another quarter of weak sales at its general chain, BIG W.
Same-store sales in Woolworths’s Australian food and liquor stores rose 3.5% in the three months ended April 6 (adjusted for Easter), matching the growth at Coles, but falling slightly short of market forecasts of around 3.8%.
Many analysts had expected Woolworths’s same-store sales (the truest measure of retail sales performance) to exceed those at Coles for the first time in almost five years.
Woolworths’s total Australian food and liquor sales rose 4.% to $10.4 billion, buoyed thanks to the opening of four new stores.
Its Big W division saw sales down 1.1% (Easter adjusted or 3.8% unadjusted) to $900 million. Same store sales fell a massive 8.5% (5.9% Easter adjusted), which was worse than Wesfarmers’ Kmart (same store sales up 0.7% for the quarter) and the struggling Target chain which saw sales fall in all measures in the quarter, but not quite as much as that seen at BigW.
Woolies hotels saw sales of $357 million, up 1.1%, 0.6% adjusted for the later timing of Easter.
The Masters home improvement chain and wholesale hardware operations had sales for the quarter of $374 million, up 29%.
Wesfarmers’ Bunnings chain had sales of more than $2 billion for the quarter – up 12.3% on a topline basis, or 9.1% on a same store basis. That’s the real difference between Coles and its chains and Woolies, even though it is a bigger retailer.
Bunnings is a vastly superior performing retail chain at the moment and Woolies Masters chain doesn’t come anywhere near that in terms of quality and sustainability of sales growth.
Video – WOW 3Q Sales miss the mark
