coles v woolies

'Coles tipped to trump Woolies.
Blair Speedy
The Australian
January 31, 2011 12:00AM

THE Coles supermarkets chain is expected to report continued outperformance of arch-rival Woolworths when Wesfarmers releases second-quarter sales figures for its retail businesses today. But investors will be looking for signs that the company's discount department store chains Kmart and Target have suffered a similar fate to Woolworths' Big W division, which last week reported a 4.5 per cent fall in sales, excluding the benefit of new store openings.

Goldman Sachs analyst Phillip Kimber is forecasting Coles to report a 5.5 per cent increase in food and liquor sales on a same-store basis for the second quarter, a decline from the 6.2 per cent seen in the first quarter, but more than double the 2.5 per cent growth reported by Woolies' supermarkets division.

Should the prediction prove correct, it will be the sixth consecutive quarter in which Coles has outperformed Woolies on comparable store sales growth.

Investors will also be keen to see whether Coles is continuing its discounting war with Woolworths, which has seen both chains slash shelf prices to lure customers.

Woolworths last week reported that shelf prices fell by 4.2 per cent on average in the second quarter when promotional discounts were included.

Before last week, Woolies had only reported internal inflation data, excluding the impact of promotional specials, arguing that to include them would produce an artificially low inflation figure.

But the company relented last week, in a move that provided partial justification for a surprise downgrade in annual profit guidance, which is now expected to grow by between 5 and 8 per cent, down from previous forecasts for a gain of between 8 and 11 per cent.

UBS analyst Ben Gilbert said he expected Coles to have reduced the level of discounting on shelf prices, as it turned its attention from market share to earnings.

"Anecdotal feedback suggest Coles will take a more rational approach to pricing in 2011, as they aim to drive returns. This presents further upside to margins through less price investment and more 'normal' inflation," he said.

Mr Kimber said Wesfarmers' discretionary businesses -- Kmart, Bunnings and Target -- were expected to report "subdued" sales, as weaker consumer sentiment and poor weather conditions crimped spending on non-essentials.

Woolworths last week said sales of summer clothing and outdoor merchandise suffered during the December quarter, while significant price deflation in clothing and electronics reduced the level of revenue generated by each sale.

The release of Wesfarmers' sales figures will also be the first opportunity to quiz the company on its involvement with the Retail Coalition, a group of merchants including Myer, Harvey Norman and Just Group that are pushing the government to scrap tax exemptions on purchases made from foreign websites.

Target added its name to the list of 21 retail chains on newspaper advertisements that ran earlier this month calling for the tax exemption to be dropped, but has so far allowed its fellow campaigners to bear the burden of publicly campaigning -- and thus the bulk of the criticism from shoppers.'