Retail sales data for Christmas and the first two months of 2014 indicate positive sales growth, lifting optimism of a revival in the retail sector. But despite this, third quarter sales results for Coles and Woolworths suggest it is too early to break out the bubbly. While relatively robust in terms of the overall retail market, third quarter sales growth for both food and liquor chains was lower than expected, and total group revenues provide little cheer for the remaining months of the
current financial year.
The supermarket chains continue to post good growth in challenging retail conditions, but Coles has a soft underbelly in liquor sales and its Target and Kmart discount department store chains, while Woolworths has yet to get its Masters Home Improvement business firing and is also struggling to lift sales at Big W.
Sales for both companies need to be analysed in the context of the Easter holiday weekend straddling March and April in 2013, but outside the first quarter this year, the shift would not have had a massive impact on results.
Sales growth has been impacted by price deflation, which Coles has estimated at around 1.5 per cent for the financial year to date.
Analysts had expected Woolworths to post stronger growth than Coles in the food and liquor businesses, in part, because of the company’s dominant position in liquor, however, both recorded growth rates of 3.5 per cent for the third quarter after adjusting for the timing of the Easter holidays.
Coles headline food and liquor sales for the third quarter were $6.7 billion, up 3.9 per cent on the previous corresponding period, underpinning an increase for the financial year to date of 4.7 per cent to $21.7 billion.
Woolworths headline sales were up 4.4 per cent to $10.38 billion on the comparable third quarters and, identical to Coles, up 4.7 per cent on year to date for total revenues of $31.86 billion.
Richard Goyder, Wesfarmers MD, said the group’s retail sales performance during the third quarter reflects a similar mix of results to the first half, with Bunnings and Officeworks posting strong performances and the discount department stores continuing to struggle for revenue growth.
Grant O’Brien, Woolworths CEO, also said the third quarter continued first half trends and noted that the percentage sales increase of the latest period represent market share gain.
Both Goyder and O’Brien lament the constraints placed on their fuel docket schemes and claim sales growth would have been stronger if they had not been forced by the Australian Competition and Consumer Commission to curb the level of discounts.
While food and liquor sales are continuing at a consistent pace, Wesfarmers’ Bunnings hardware business turned a stunning performance in the quarter, with a 12.3 per cent increase in sales to $2.09 billion lifting year to date growth by 11 per cent to $5.52 billion.
A net six new stores helped to lift sales, but double digit revenue growth in a mature store network of 319 stores in the prevailing retail conditions is exceptional.
Woolworths third quarter increase was 29 per cent bolstered by new store openings, and O’Brien maintains Masters remains on track to break even in profitability within two years.
Both companies have headaches in discount department stores, with Kmart barely lifting sales in the third quarter by 0.4 per cent and Target suffering a 3.8 per cent fall in revenues on poor results for the comparable period in 2013.
Kmart’s like for like sales were up 0.7 per cent in the quarter, while comparable sales for Target were down 5.9 per cent.
Big W sales for the third quarter were down 3.8 per cent on 2013, or a worrying 8.5 per cent on a like for like basis.
On a year to date basis, Kmart’s sales are up 0.2 per cent at $3.21 billion after generating $845 million in the third quarter and Target’s year to date sales are down 4.8 per cent to $2.69 billion after achieving sales of $674 million for the latest period.
Big W has posted sales of $3.38 billion for the year to date, 0.9 per cent below 2013, but with the third quarter chipping in just $926 million, down from $963 million in the same three month period in 2013.
Management for both Target and Big W claim that the sales falls reflect restructuring initiatives within the businesses, but all three of the discount department store chains are struggling to make any headway on soft sales levels in the 2013 financial year.
This article first appeared in Inside Retail PREMIUM issue 1996.