Wesfarmers (WES) slid more than 5% yesterday, dragging the wider market sharply lower with it, after it revealed surprisingly weak September quarter sales figures for its Coles supermarkets chain.
Wesfarmers shares ended at $41.46, down 5.6% (its biggest fall since 2009) as investors ignored solid sales figures for Bunnings, Officeworks and Kmart, and focused on what was a sharp slowdown in sales growth momentum at Coles. The struggling Target department store chain though again lagged, with a 17% slide in sales as it stopped selling toys.
Coles’ saw same-store food and liquor sales rise 1.8% in the three months ending September, well down on growth of 3.3% in the June quarter and 3.6% in the first quarter of 2015-16. Analysts put it down to the continuing battle for market share in the supermarket sector between Coles, Woolworths and Aldi.
We’ll know how Woolies went in its first quarter when it releases its sales figures tomorrow.
Analysts reckon Woolies same-store food sales will grow at between 0.3% and 0.5%.
Coles also continues to gain market share, with total sales growing 2.9% to $7.85 billion. But that was sharply slower than the 4.7% growth rate a year ago, and 5.1% for the year to June.
Analysts say yesterday’s data confirms that like Woolies, Coles’ momentum is slowing significantly as Australia’s second largest supermarket chain it cuts prices to defend its share against Woolworths and Aldi.
Coles’ food and liquor prices fell 1.0% for the quarter, compared with deflation of 2.4% in the June quarter, as deflationary pressures in produce abated. Indeed yesterday’s Consumer Price Index revealed a near 20% jump in vegetable prices and a 5% rise in fruit costs in the September quarter.
Fruit and vegetables prices were hit by the wet weather in much of the country in the quarter.
Wesfarmers CEO, Richard Goyder said that the sales performance of the Group’s retail businesses, with the exception of Target, built on the strong sales growth achieved in the prior corresponding period.
“Coles’ headline food and liquor sales increased by 2.9 per cent for the quarter, building on the strong growth achieved in the previous corresponding period,” Mr Goyder said. “Coles continues to invest in value, service and quality, supported by ongoing efficiency improvements across the business.
“Bunnings Australia and New Zealand achieved total sales growth of 7.4 per cent during the quarter, extending its very strong performance despite an impact from the stock liquidation activities of the Masters business. In the United Kingdom and Ireland, good progress continues to be made to reshape the business, with sales of £320 million ($554 million) for the quarter, in line with expectations.
“Kmart recorded strong sales growth of 11.2 per cent, with a continued focus on lowest prices and the customer experience delivering growth across all categories. Target experienced a challenging quarter, with the accelerated conversion to everyday low pricing and the decision to cease the Toy Sale contributing to a 17.1 per cent decline in sales.
“Officeworks’ sales growth of 7.5 per cent reflected strong execution of its ‘every channel’ strategy, with positive sales growth achieved both in-store and online.
“The Group’s retail businesses will continue to invest in customer value, service and store networks, as well as improve product ranges and digital capabilities to deliver sustainable growth over the long-term.”
