Woolworths has credited its transformation program, now in its second year, for helping it ride a wave of stronger sales at its flagship food and liquor division. But the nation's biggest retailer was still relying on promotions and discounts to attract shoppers.
The continued slide in prices on supermarket shelves, and heavy discounts on fuel that have triggered a war of words with the competition regulator, underline the fragile state of consumer confidence with many retailers reporting that consumers will open their wallets only for sales.
Woolworths on Tuesday reported sales for the year to June 30 had risen 4.3 per cent to $59.16 billion, despite weak consumer confidence and low inflation. Sales were 2.4 per cent stronger when stripping out the impact of an extra week's trading in fiscal 2013.
It said its transformation program had been "rewarded with a strong sales result".
"Momentum continues to increase in Australian food and liquor with comparable sales growth for the second half higher than the first half and the prior year," chief executive Grant O'Brien said.
Some analysts were more concerned with stalling sales momentum when considering that Woolworths had substantially increased its trading floor space over the past two years, as well as the growing tension between the retailer and the ACCC, which could spill over into a costly court case.
Woolworths shares fell as much as 4 per cent on the release of the sales result, before closing 55¢ lower at $33.22.
At its food and liquor division, which generates 76 per cent of total group sales, comparable store sales rose 2.9 per cent for the fourth quarter, against a 1.3 per cent lift in the fourth quarter of 2012. Full-year sales at its Australian supermarkets were up 2.7 per cent, against 1.1 per cent in the previous year.
Sales were still being driven by cheaper food prices, some pushed lower by discounts and promotions.
Average Australian supermarket prices fell 2.9 per cent for the year and 3.5 per cent for the fourth quarter.
Big W sales grew by 4.9 per cent for the year but on a like-for-like basis they were 0.7 per cent weaker for 2013. In 2012 Big W sales were down 1.5 per cent.
CBA retail analyst Andrew McLennan said the fall in Woolworths' share price after the release of its full-year sales results could in part be a reaction to the weak Big W figures, which had been hit by poor weather, which in turn affected clothing sales. But the food and liquor sales results were fine.
Woolworths hotels division was a star, helped by acquisitions and changes to Victorian gaming legislation that resulted in sales soaring by 22 per cent for the year.