THE DISTILLERY: Wesfarmers' grit

Rate Rise Looms was seen working up a sweat in the mists on the training tracks this morning ahead of next Tuesday's meeting at the Reserve Bank. But the contenders to really catch the eye of the jottery were Wesfarmers and Macquarie, two premier performers with reasonable form. Macquarie produced a trading update ahead of yesterday's AGM in Sydney that depends on a few wings and quite a few prayers whereas Wesfarmers produced sales figures for its Coles and Bunnings chains that were on the smiley side of good.
 
Fairfax's Elizabeth Knight said: "Wesfarmers, which owns the Coles, Kmart, Target and Bunnings brands, produced a result yesterday that showed little threat from online competitors. Instead it demonstrated that consumers were taking advantage of the price-deflated products these brands had on offer. The market was not pleased with the overall result due to the fact that Coles's sales numbers were a bit weaker than expected, but it would have cemented the view that grocery suppliers were in a safer place than those in the more upmarket discretionary sector." The rest of her good column was on retail purchasing by Australians. 
 
The Australian's Blair Speedy said this morning: "Wesfarmers' discount department stores Kmart and Target have provided yet more evidence of the downturn in discretionary spending as shoppers refuse to part with their cash despite continued discounting by retailers. Kmart reported sales of $907 million for the June quarter, down 0.8 per cent, or 0.1 per cent when the impact of new store openings was stripped out. Target booked sales of $897 million for the quarter, up 2.7 per cent on a same-store basis, although this was recorded against a low base with the previous fourth quarter having seen a decline in same-store sales of 6.2 per cent."
 
The Australian's John Durie wrote on the paper's website yesterday: "Dan Murphy reigns supreme in the liquor market but if you exclude grog then Coles is growing twice as fast as Woolies. Both Coles and Woolworths are growing ahead of the market, which tells you the corner store is suffering as the big supermarkets expand their presence in fresh foods. The 5.2 per cent comp store sales growth from Coles was the ninth successive quarter in which it has outpaced Woolies. The big test will come with next month's profit numbers, because the impression you get is Coles is cutting costs and lowering prices by cutting choice."
 
Business Spectator's Stephen Bartholomeusz wrote: "The sales performance of Wesfarmers' retail brands provides some confusing insights into the state of retailing, largely because two of the bigger brands appear to be driven by something other than the external conditions. The biggest of the brands, Coles, now appears to be firmly entrenched in that virtuous cycle that powered Woolworths to a dominant position in food and liquor, with the savings from the productivity gains Ian McLeod and his team have extracted being pumped back into lower prices and improvements to its stores, and in the process driving sales growth.
 
Fairfax's Adele Ferguson wrote on smh.com.au yesterday: "As retailers bemoan the tough climate in Australia, the Wesfarmers-owned Coles supermarket chain has continued to slug it out with Woolworths and expand its supermarket business at almost twice its rival's pace in the fourth quarter. This latest sales update is a good result for Coles – albeit one that was shy of the market's estimates. It also underscores the fact that while many retailers are doing it tough, as consumers spend less and scrounge for bargains, there are pockets of the sector that are doing well."

The Herald Sun in Melbourne reported this morning that: "Wesfarmers chief Richard Goyder has signalled that Coles will ultimately have no choice but to reverse aggressive price cuts that have reinvigorated the chain. Goyder acknowledged yesterday that the retailer would pass on cost increases that it was unable to absorb, in a concession that Coles will not take losses on products such as milk to drive sales volumes in the face of accelerating inflation. He was speaking after revealing that the Wesfarmers subsidiary had chalked up 6.7 per cent sales growth in the year to June, significantly outpacing rival supermarket goliath Woolworths." 
 
Meanwhile, The Australian's Tim Boreham wrote yesterday on the paper's website: "Woolworths sales stats last week amounted to a valiant comeback effort from the sector hero, but former laggard Coles maintains the performance edge.  But the fourth-quarter gap is closing, while the fourth quarter at Coles wasn't as robust as the previous three-month period. Wesfarmers this morning reported a 6.3 per cent rise in comparable full-year sales for the food and liquor business at Coles, compared with 3 per cent at Woolworths. Fourth quarter sales at Coles rose 5.3 per cent, roughly on par with expectations, compared with 4 per cent growth for its arch-rival."
 
The Financial Review said this morning: "There's no love lost between Woolworths and Wesfarmers, but the Perth conglomerate now knows how Woolworths must have felt a few years ago." 
 
On interest rates, the Herald Sun reported that: "ANZ has broken ranks with the other major lenders and forecast that interest rates will rise next week as the Reserve Bank moves to curb spiralling inflation. The bank's economists believe the RBA board will pull the trigger on rates when it meets on Tuesday, lifting the official rate 25 basis points to 5 per cent. ANZ chief economist Warren Hogan said quick action now would save the economy from a "painful series of rate hikes" in 2012."
 
And The Australian's John Durie made a good point this morning in a comment about the last days of ACCC head Graeme Samuel: "The bank economists are playing merry with rival interest calls, which makes a mockery of Samuel's price-signalling threats against the banks. Westpac hit the tape recently, predicting a rate cut. Now ANZ says there will be a rate increase. But of course they are the economists – not the people who make the rate calls."
 
Still in retailing, the AFR reported this morning: "Myer chief executive Bernie Brookes has taken the razor to middle management as cost cutting reaches deeper into Australia's biggest department store as it looks to offset weak consumer spending."

The Financial Review also reports this morning: "An overhaul of company capital raising is a new area of reform as Treasurer Wayne Swan aims to use the October tax forum to restart the reform agenda."
 
Another big story was a new LNG project in Queensland. The AFR reported: "Origin Energy and ConocoPhillips gave the go-ahead for a $US14 billion investment in its liquefied natural gas project in Queensland, as part of a total $US20 billion two-train project." That saw the paper's Chanticleer columnist write: "There are three significant aspects to yesterday's announcement by Grant King about Origin Energy's coal seam gas joint venture in Queensland."
 
The Australian's John Durie wrote this morning: "Macquarie has six businesses, of which three are doing OK and account for about 48 per cent of net revenues. They are leasing (10 per cent) banking (20 per cent) and funds management (18 per cent). They are businesses over which Moore and his team have some control, but the rest are partly market-dependent, and indeed even the better divisions would be supercharged by a better market. This is where the US deficit talks hold the key: because while there is uncertainty in global credit markets, fee-generating corporate activity slows to a crawl."
 
On Macquarie, Fairfax's Malcolm Maiden wrote: "One of the problems Macquarie chief executive Nicholas Moore faces is that the more he portrays his group as just a normal investment bank, the more ordinary its share price becomes. Ahead of its annual meeting yesterday, Macquarie held its guidance for a profit in the year to March 2012 that tops last year's $956 million result. But it also said profits in its big operating divisions were down on the March quarter this year because of weaker market conditions, and forecasts for an improved profit were contingent on conditions being ''not materially worse'' than they were in 2010-11. Given that Macquarie is now expected to book about $130 million of net profit in the second half as it banks its 22 per cent share of a cash return from MAp Group after the airport owner's recent asset swap, the unchanged earnings target could be seen as downgrade – and even then, the stable market conditions it relies on are not assured."

Business Spectator's Stephen Bartholmeusz wrote: "In the short term therefore, it is improbable that Macquarie is suddenly going to power back into the market's favour, even though it is maintaining full-year guidance of a better result this year than last (with the usual caveat relating to market conditions) despite expecting a lower first-half profit than it achieved in the first half of last year. In the corresponding half of last year, of course, Macquarie had a one-off accounting gain from the reclassification of its 22 per cent holding in MAp; whereas in the second half this year it will share in MAp's distribution of up to $1.5 billion of cash after agreeing to sell its interests in offshore airports. The more interesting aspect of Nicholas Moore's presentation to the Macquarie annual meeting than the near-term guidance, however, was the note of confidence he struck in relation to the group's medium-term future."
 
And The Sydney Morning Herald's Stuart Washington waxed all fishy in his comment on the Macquarie update on smh.com .au yesterday: "Just like a fishmonger, Macquarie chief executive Nicholas Moore knows how to best present his wares for inspection. In the case of the fishmonger setting out the day's prawns, the fresh pink beauties from Yamba get pride of place; the not-so-recently thawed specimens from Vietnam get shoved to the side. It's a testament to a very changed world that the metaphorical fresh prawns given the big sell by Mr Moore in a presentation ahead of today's annual meeting were very much the unloved salted haddock of yesteryear." It's called fishing for a metaphor!