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Wesfarmers shares tumble on cooling sales

Wednesday, 26 Oct 2016 09:47:50 | Stephen Letts

Coles also experienced weaker sales in petrol and convenience stores. (Photo: Tim Wimborne, Reuters.)

The renewed war in Australia's supermarket aisles has taken its toll on Coles, with the supermarket chain reporting its weakest sales increase since 2009.

Overall like-for-like (LFL) sales - which excludes new store openings - in food and liquor grew by just 1.8 per cent in the September quarter, well below market forecasts and below the 3.3 per cent growth reported in the previous quarter.

Headline supermarket sales growth - including new stores - was up 2.9 per cent for the quarter to $7.9 billion.

The weakness spooked investors, with shares in the parent company Wesfarmers tumbling more than 5 per cent to $41.71 at 12:45pm (AEDT).

Morgan Stanley analyst Thomas Kierath said the sluggish LFL sales growth is attributable to slowing market growth and an increase in competition.

"It's clear Woolworths' elevated promotional activity has impacted on Coles," he said.

The slowing sales growth occurred while supermarket deflation eased from 2.4 per cent to 1 per cent, which Mr Kierath said implied a slowdown in volume growth from 5.7 per cent to 2.8 per cent.

The trend of weaker sales in petrol and convenience stores that showed up in the 2016 full-year profit has continued, with Coles Express sales down almost 14 per cent for the quarter and comparable fuel volumes down 10.7 per cent.

Target continues to be drag on the Wesfarmers business, with sales down 17 per cent for the quarter and 22 per cent on a like-for-like basis.

Mr Kierath said about 10 per cent of the Target decline was due to it abandoning the annual toy sale.

"Underlying performance is very weak and it appears that the cessation of the toy sale has impacted other categories across the business," Mr Kierath noted.

On a brighter note for the company, Bunnings continued its steamroller performance, with sales up 5.5 per cent on a like-for-like basis, seemingly little affected by the heavy discounting going on at the crushed Masters chain.

Sales in Bunnings' UK expansion were "in line with expectations" of $554 million for the quarter with customer transactions up 8.4 per cent.

Kmart and Officeworks also reported strong, consensus-beating sales up 8 per cent and 7.5 per cent respectively.

The resources division of the Wesfamers' conglomerate has benefited from strong coal prices, although it gave guidance that it will only achieve breakeven earnings for the first-half given bad weather and production disruptions.

AustraliaPlus


 

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