THE DISTILLERY: Coles cheerleaders

Shshhh, be very quiet, listen, it's the sound of Easter buns and eggs gathering for their annual dash for freedom. I'll not let them get away this time, so let's get into this morning's distillations, I've a date with an attractive bun or two, chased down by a small milk choccie delight and a short black or three. Of course, I could be going to Coles or Woolies to feed my addictions, but you can't sit and wonder about life and a five day break at either. But a lot of other people have been to both retailers in the latest quarter, including no doubt our jotters who write so knowledgeably about them, especially Coles after its sterling March quarter figures were released yesterday.
 
Fairfax's Elizabeth Knight wrote this morning: "Another dazzling sales figure from Coles raises the stakes in the mother of all supermarket battles between it and Woolworths. A good quarter means little in the long run but no one could deny the sales results produced yesterday, when pitted against weaker percentage gains from Woolworths, suggest a clear trend is continuing. There is plenty of cause for celebration down in the Coles camp in Melbourne, as there will also be in Perth, which houses the supermarket chain's parent company, Wesfarmers. Without wanting to play down the achievements racked up by Coles management, it is also fair to say that Woolworths must ultimately draw a line in the sand." Hmmm, I'd have thought it was more a line at the checkout, or in the aisles.
 
And the Herald Sun's Terry McCrann said: "Right now Coles is still winning the sales race. It lifted comparable store sales by 7.2 per cent in the quarter. Woolies lifted comp store sales by only 3.3 per cent. And had to pump out just as much extra product as Coles to get few dollars back. Indeed adjusting for the shorter Coles quarter, Coles still managed to increase sales by more actual dollars in the quarter than Woolies which is much bigger. But the sales gap is less than it's been over the past half-dozen or so quarters. So Woolies is fighting back. At what cost to its margin. And at what cost to the Coles margin. To say nothing of all the other retailers who are suffering collateral damage."

Business Spectator's Stephen Bartholomeusz found: "The renaissance of Coles is continuing, indeed gathering pace. As has become the new norm, after Woolworths disclosed renewed momentum in its food and liquor sales earlier this week, Coles has again out-paced it. For both of the big supermarket groups the pleasing aspect of their third quarter sales performance will be that, despite the tough and competitive conditions for all retailers, there was an acceleration of both volume and sales growth in the third quarter. Both are reporting higher foot traffic and bigger basket sizes." Because they sell bigger shoes and baskets?

Fairfax's Adele Ferguson wrote on smh.com.au yesterday: "The turnaround story at the Coles supermarket giant might be only part complete but its dazzling third quarter sales figures released today will give arch rival Woolworths some major heartburn. The past 12 weeks reveal that the much vaunted comparable store sales figures in Coles food and liquor division jumped 7.2 per cent, which is more than double Woolworths' 3.3 per cent rise (over 13 weeks), and a long way away from the dark days of 2007 when comparable store sales at Coles were less than 1 per cent. These latest sales figures are the seventh consecutive quarter where Coles has outperformed Woolworths in percentage terms, and the sixth consecutive quarter where it has beat them in absolute dollar terms."
 
And The Australian's Tim Boreham had two goes, writing yesterday: "On Monday, Woolworths' better-than-expected sales numbers cast doubts on how well arch-rival Coles (Wesfarmers) could sustain its impressive recovery. As it happens, there's room for all... or make that room for two. Coles has again outblitzed Woolies with third-quarter food and liquor growth of 7.2 per cent on a like-for-like basis, more than doubling Woolies' 3.3 per cent." And this morning Boreham said: "While dairy farmers might not attest to Coles's concern for the underdog, the strained dynamic between the retailer and at least some suppliers shows just how cut-throat the supermarket war has become. But while Coles is credited with (or blamed for) starting the milk and bread price wars, Woolworths seems to be faring worst from the discounting. Excluding discounts and promotions, Woolies' shelf prices rose 1.3 per cent (ex tobacco) in the third quarter. But including the discounting, the prices fell 3.6 per cent. Coles yesterday reported overall price deflation of a mere 1.4 per cent (ex tobacco), reflecting cost pressures in fresh produce (and, presumably, less discounting than its rival)." And guess who wins? Customers, but don't tell the Senate Committee looking at milk prices, it might to be too hard for them to understand.
 
Here's a case a little in the realms of man bites dog; The Australian Financial Review reports: "Greg Bundy, a former boss of investment bank Merrill Lynch Australia, is suing his stockbroker, Goldman Sachs JBWere Capital Markets, for misleading and deceptive conduct." Actually it's more Bundy vs Vampire Squid.
 
Qantas produced another set of fuel surcharges on Tuesday that in some cases will be more than some of the discount fares the airline offers. The Fairfax broadsheets report there's a feeling the airline is being greedy: "Qantas's latest fare increases are excessive and unnecessary, and could drive away customers, the equities research arm of Macquarie Group has concluded. The rises could backfire on the airline by triggering a fall in passenger demand and could be hard to justify in a price-sensitive market, Macquarie's analysts, Russell Shaw and Sam Thornton, said. The recent airfare rise – the fifth this year – has pushed fares up between 14 and 17 per cent from last financial year and are probably unrealistic, they argue." Interesting point. Will any other analyst follow up?
 
The Australian finally caught up developments in the RHG soap this morning: "The saga of RAMS Home Loans founder John Kinghorn and his rump company RHG threw up another drama yesterday when three new potential directors nominated by dissident shareholders sat down for talks with him. RHG is facing not one but two extraordinary meetings, one on April 28 and one in June, first to debate Mr Kinghorn's controversial 88 cents a share buyback proposal, and then to revamp the board. Dissidents Wilson Asset Management and Cadence Funds Management requisitioned the second meeting to install three new independent directors and replace two existing directors, John McGuigan and Greg Jones, who have business interests elsewhere with Mr Kinghorn. The new nominees are Malcolm McComas, Paul Jensen and Gabriel Radzyminski."
 
And The Australian's Bryan Frith has found a similar corporate soap: "For the second time in recent weeks a party seeking control of a company has sought to coerce shareholders into acceptance by threatening to delist the securities from the ASX. RHG chairman John Kinghorn threatened delisting to pressure other shareholders into selling into a buyback at 88 cents a share, which could increase the stake of Kinghorn and his son Geoffrey to more than 80 per cent of the capital. The latest to try the delisting tactic is US real estate investment venture EPN GP, jointly owned by Elbit Plaza USA and Eastgate Property. Elbit Plaza is jointly owned by Israeli companies Elbit Imaging (a global diversified conglomerate fund) and Plaza Centers (an emerging markets developer of shopping and entertainment centres)."

And speaking of soap operas, did anyone mention Waratah trains? Nabila Ahmed of The Australian did this morning: Downer EDI finally delivered the first of the 78 train sets to RailCorp yesterday. But it's interesting to note that RailCorp was yesterday not able to confirm whether the delivery of the second train – scheduled for between July and October – will be affected if it cannot give the practical completion certification for the first train in the forecast four- to six-week period. Further delays will no doubt create a political headache for Berejiklian and her boss Barry O'Farrell, prompting continued speculation that the official timetable for the project is pushed back." The Waratah train is more like a black hole, beware.
  
The AFR also reports that Exchange Traded Funds are being watched more closely: "The Australian Securities Exchange is stepping up its scrutiny of a new class of listed investments which global regulators have warned could sow the seeds of the next financial crisis." So they should, ETFs started as a good idea, now they are a speculative nightmare, especially in the US.
 
And the AFR says: "The Royal Bank of Scotland reckons Fairfax Media is on the verge of undertaking corporate activity to unlock value for its shareholders." 
 
On smh.com.au Michael Pascoe took the long handle to Wayne Swan's claim to be preparing a tough budget: "Oh woe is me, life is so unkind, it's just terrible being treasurer of a poor little rich country. That's what Wayne "Goose” Swan is saying to anyone who wants to hear. Next he'll claim that he's working on a really tough budget. Whoops, he already is. Claiming, that is – not actually working on a really tough budget. It's not a tough budget when it remains laden with government handouts for the relatively well off, when business is being promised a lower tax rate, when the Australian electorate continues to be told the big lie that it can continue to expect more from government while paying less for it. It's not a tough budget when there are plenty of spare millions for this member's favourite football ground refurbishment, for that industry's corporate welfare, for fuelling the welfare lobby's sense of entitlement, for the Defence Department to continue to be the Defence Department, let alone when the Department of Climate Change is left in charge of a carbon tax."
 
And this morning The Australian reported: "For the second time in recent weeks a party seeking control of a company has sought to coerce shareholders "For the second time in recent weeks a party seeking control of a company has sought to coerce shareholders the past 12 months, strengthening economists' claims that Wayne Swan is talking down the gains from the mining boom to give him an excuse for unpopular budget cuts. Trade figures released yesterday show that over the past year, the average price received for exports soared 21 per cent as Asian, particularly Chinese, demand drove iron ore and coal prices sharply higher. In the same period, the cost of imports rose just 1.4 per cent." But the economy has been hit and so have tax collections, by write offs against the spending on the early stage of the boom and the floods have damaged export volumes, especially in coal, LNG and iron ore in the March quarter, as BHP, Rio and Woodside's latest reports have revealed.
 
The AFR's Chanticleer columnist writes this morning: "Heading into the bank profit season, the forecasts are for generally clement weather. But weather is not climate." The big three, Westpac, ANZ and NAB are due to report in the first week of May. And the paper also pointed out that "When Macquarie CEO Nicholas Moore delivers the bank's full-year results next week, shareholders won't be the only people anxiously awaiting the news."
 
And the vultures are gathering around a still warm and living Gunns, looking to get a class action going, as AAP and various papers report this morning: "Law firm Maurice Blackburn has begun a class action against woodchipper Gunns Ltd on behalf of more than 300 shareholders. Maurice Blackburn said today that the shareholders had lost millions of dollars, after Gunns' "disastrous" financial performance in the 2010 financial year. "Shareholders claim that the market should have been warned that Gunns' financial results for the first half of 2010 were going to be dismal," Maurice Blackburn said in a statement." Squaarkk.