Woolies results expected to confirm retail gloom

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This was published 13 years ago

Woolies results expected to confirm retail gloom

By Eli Greenblat

WOOLWORTHS is expected to announce this morning fourth-quarter sales of $11.7 billion, meaning historically low growth of 5 per cent, as Australia's biggest retailer is stung by soft food and liquor turnover, a decline at apparel chain Big W and sluggish consumer electronic sales.

The restrained quarterly growth is expected to be mirrored by other leading retailers, such as chief rival Coles, Myer, David Jones and Harvey Norman, with the broader sector still unable to match the results achieved as a consequence of the federal government's stimulus package.

Woolworths is the first retailer to report sales for the fourth quarter.

Its performance will provide a crucial insight into the state of the retail industry in Australia, with some recent economic statistics pointing to a marked retreat in consumer confidence and spending.

In May, Woolworths was forced to trim its full-year sales targets due to the hangover from last year's stimulus spending, with chief executive Michael Luscombe warning normal sales growth rates were not expected to return until 2012.

A similar picture of stagnant consumer expenditure emerged this week as Commonwealth Bank's business sales indicator fell 0.3 per cent in trend terms in June after a similar decline in May.

The results over the past four months have been the worst since early 2008 when the global financial crisis was at its height.

Yesterday's minutes from the Reserve Bank's meeting this month showed the board had also registered a sluggish retail sector.

''Liaison with retailers in late June suggested a slightly more positive picture than a few months ago, although many retailers reported that conditions remained subdued and that significant discounting had been required to drive sales,'' the board minutes noted.

Citi analyst Craig Woolford, commenting on Woolworths' quarterly sales report, said supermarket and liquor industry volumes had been soft over the past few months. ''Cycling the fiscal stimulus effects has hurt, especially in liquor,'' he said. ''In addition, the consumer trend towards eating out of home detracts from volumes.''

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Mr Woolford is forecasting a -8.5 per cent comparable store sales decline for Big W and -4 per cent for consumer electronics.

''The stimulus effects are hurting, but we also believe that Kmart's lower price point strategy has taken market share in the discount department store space.''

He said fruit and vegetable prices remained depressed and the effect of Woolworths's shelf-price reductions on approximately 30 per cent of packaged groceries had contributed to deflation.

Phillip Kimber, of Goldman Sachs JBWere, expects Woolworths's discretionary businesses (non-food and grocery) to report very weak sales for the quarter.

He anticipated Big W would be the worst hit of the divisions with comparable store sales growth of -10 per cent.

Wesfarmers, owners of Coles, Kmart, Target and hardware group Bunnings, is due to release its fourth-quarter sales figures on Monday.

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