THE DISTILLERY: Woolies esteem

Jotters show mixed levels of optimism over Woolworths' results, with one saying they're a work in progress and another commending solid growth.

The commentariat loves a good battle, and Woolworths' first-half results offer plenty of clashes to spill ink over: the retailer is simultaneously fighting off Coles, suppliers and regulators. Also this morning, Harvey Norman receives some sympathy and Rio Tinto is judged as having made the right leadership choices.

First, though, Fairfax's Malcolm Maiden agrees with Woolworths when it says its result is a "work in progress". Running through chief Grant O'Brien's plans to fend off Coles – the rollout of the Masters chain, the creation of online channels and opening new stores – Maiden says the retail boss "has a mountain to climb to get Woolworths back to its glory days."

"It's…still significantly more profitable pound-for-pound than arch-rival Coles – but Coles is catching up, and its O'Brien's job to do something about it. His big bets are laid, and from here on he will see what the payouts are."

However, Business Spectator's Stephen Bartholomeusz says these comparisons with Coles "are more useful in terms of measuring Coles’ progress in renovating its business than reaching conclusions about Woolworths’ performance. The size and strength of Woolworths’ food and liquor business makes it a benchmark for Coles, rather than the other way around."

"Because the starting points are so different Woolworths’ own progress needs to be tracked against its own performance and, after a couple of lacklustre years where the group appeared to be coasting and complacently taking its dominance for granted, O’Brien is now delivering solid and high-quality growth."

Also in focus are regulatory concerns, as the Australian Competition and Consumer Commission considers a swag of supply allegations against against Woolworths and Coles.

As Woolworths handed down its result, farmer lobby groups were considering Coles and Woolworths version of a voluntary industry code of conduct. If the Australia Food and Grocery Council agrees to the code, it would signal a major backflip for the organisation – thanks, seemingly, to the departure of its combative former chief, Kate Carnell.

The Australian Financial Review's Chanticleer columnist Tony Boyd says "Under the current AFGC chief executive, Gary Dawson, there is a willingness to engage with Coles and Woolworths and use a voluntary code of conduct as a mechanism for avoiding the big stick carried by Coles and Woolworths. That big stick is the threat that if there is not a voluntary code the supermarket chains will have to impose upon the suppliers a cost to cover wastage, theft and promotions."

Boyd notes an agreement would kill off Carnell's plan to achieve legally enforceable equal access to a grocery distribution network covering 80 per cent of Australia.

The Australian Financial Review's Matthew Stevens also sees a silver lining in the fact Woolworths "ran very, very hard through the December half just to maintain a virtuous status quo on costs."

"In effect, to the vocal frustration of some analysts, the benefit of a long, hard spend on new logistics chains, better stock management to reduce costly waste and on more focused promotional spend is that it has, at best, stood still on costs," he says. "But…those cynical of the way the supermarket chains exercise their market power will doubtless receive this latest cost result as indicative of their ability to pass costs on to suppliers just as efficiently as they extract margin from customers."

The other retail earnings story this morning is Harvey Norman, which posted a result that might be a little better than it looks, according to Fairfax's Elizabeth Knight. That's because the company is a property play as well as a retail play.

"It's a more complicated story because the property gets revalued up and down (which gets captured in the profit results) and the company's support for its franchisees moves around (and this also gets reflected in the results.) If one strips out the movement in the valuation of property in the December period and the previous corresponding period, the result reflects more accurately how the retail business is performing. It is still not good but pre-tax earnings are down a more moderate 5.2 per cent. This is far short of a stellar performance but is more in line with the results of comparable companies."

Rio Tinto's surprise appointment of Chris Lynch as its new finance chief is also getting attention. Matthew Stevens calls him a "savant with numbers and has a mass of top-level experience in the sector," while Malcolm Maiden praises says he proved he has a "bulldust detector" when he weaned Transurban off debt-funded dividend payments.

Elsehwere, The Australian's Bryan Frith examines Sundance Resources investors' lacklustre response to news Hanlong Mining had satisfied a deadline in its protracted $1.38 billion takeover of the iron ore hopeful – paying the first $5 million tranche of a $15 million convertible note facility. After so many troubles with China's main regulator, Frith says investor scepticism is understandable.

Finally, Frith's papermate Adam Creighton points out just how meaningless the federal election is likely to be, as both parties "[foster] the illusion of difference where sameness abounds." What's more, analysts tell him foreigner investors couldn't care less which party is in power federally.

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