THE DISTILLERY: Woolworths' wrestle

Locally, it's all about Woolworths, retailing, resources and BHP this morning. Overseas, despite yesterday's market euphoria, there is no sign of any agreement in Washington on the US debt ceiling (it was a plan for a plan), and Greece has now moved to centre stage anyway in the worry stakes, with no sign of an agreement in Europe before an emergency leaders summit meeting, due tonight our time, to vote on a second bailout for the country.

The Australian Financial Review reported on its website this morning: "Greece could be pushed into technical default on €300 billion ($A396 billion) of debt as the leaders of the 17 eurozone countries hold an emergency meeting in Brussels." It certainly could.

And the Financial Times reported on the front page of its Asian edition: "Jos Manuel Barroso, president of the European Commission, has warned Europe's leaders that a failure to come to a deal on a second Greek bailout within 24 hours would send shockwaves around the global economy. Barroso's comments on Wednesday come amid growing evidence that European leaders were still at loggerheads over a deal, with French president Nicolas Sarkozy flying to Berlin to meet Angela Merkel, the German chancellor, in an eleventh-hour effort to settle their differences."

The Australian's Michael Stutchbury says: "Europe's sovereign debt crisis could blow at any time. Washington is playing political chicken over defaulting on US debt. Yet, for Australia, China remains the risk we must watch most closely. The danger is that while our financial markets and foreign news are dominated by the euro crisis and the Washington budget battle, we'll be tripped up by the growing imbalances in our biggest export market. Both Treasury and the Reserve Bank have upgraded their efforts to track China's economy and policymaking; both have issued China warnings this week."

The Australian's John Durie wrote this morning: "Outgoing Woolies boss Michael Luscombe has left plenty of challenges for his successor, Grant O'Brien, in a weak market and facing a competitor with greater momentum. The good news is that when Coles releases its fourth-quarter sales numbers next week, it will show that both it and rival Woolies are getting a bigger slice of a slower grocery market. On Macquarie estimates, over the past eight quarters, the big two have been grabbing between 80 and 120 per cent of market growth. They have a 48 per cent share of the grocery market."

Back home and Fairfax's Adele Ferguson wrote on smh.com.au yesterday: "In the face of some of the toughest retail conditions, the outgoing boss of Woolworths Michael Luscombe has managed to pull a rabbit out of his hat and not just meet sales and profit guidance for the full year but produce a better-than-expected fourth-quarter sales result. In his penultimate briefing before he retires, Luscombe produced fourth-quarter sales growth of 4.2 per cent, but warned that the next 12 months would be tough for retailers. "We should be under no illusions that the year ahead will be tough,” he said. "The next year won't be a walk in the park. It will sort the girls out from the women and the boys from the men,” he warned."

The Australian's Tim Boreham wrote on the paper's website yesterday: "Like the champion boxer that it is, Woolworths has groggily climbed from the mat and is throwing a few blows at Wesfarmers' Coles, via measures such as its "price knockdown" campaign. But whether the knockdown is a knock-out to Coles' stunning revival remains to be seen. Woolies chief Michael Luscombe broadly agrees with the grim economic portents offered up by David Jones's Paul Zahra last week, but accepts Woolies is a "bit shielded from discretionary spending."

The AFR's Chanticleer wrote this morning: "Mike Luscombe at Woolworths issued a very gloomy outlook for the retail sector for the next 12 months but in doing so he avoided blaming the carbon tax."

While Fairfax's Elizabeth Knight wrote this morning: "The release of Woolworths' sales numbers and the significant downgrading of David Jones' earnings is starting to reveal a pattern in consumer behaviour and provide some forensics around spending patterns of different demographic groups. The supermarket sales figures from Woolworths tell us a couple of things. The first is that even in a tough retail environment shoppers are still buying groceries – but the make-up of the supermarket trolley is changing. In the fourth quarter to the end of June this year Woolworths' food and liquor sales were solid. They were not great and a long way from the halcyon days a few years ago. But consumers are responding positively to the lower cost of grocery items."

Fairfax's Michael West wrote this morning: "How much pain can a retailer bare? The plight of David Jones has been well telegraphed. The usual suspects: rising interest rates, rising saving rates, a sluggish east coast consumer economy, poor clearance sales, and floods and cyclones were to blame. The chief, Paul Zahra, even blamed falling earnings on the spectre of the carbon tax. Let's look at Zahra's arch-rival, Myer, for a case study. Last year, Myer notched up sales of $3.284 billion. Its gross profit for the year came in at $1.301 billion, for a gross profit margin of 39.6 per cent. Earnings before interest and tax were $271 million, or 21 per cent of gross profit."

The Australian's Michael Stutchbury wrote this morning: "Australia's cautious consumers are tightening their belts, paying off debts, and spending up like never before on foreign getaways. And it's all because of our China boom. In the past year, Australian residents took more than 7 million trips abroad for a holiday, to visit friends and relatives, for education, business, employment, to attend conferences and so on. That's more than double the 3 million or so annual overseas trips a decade ago. The biggest growth has been in holidays. Australians took nearly 4.2 million overseas holidays in the 12 months to the end of May. That's 15 per cent higher than a year before and an amazing 45 per cent more than before the global financial crisis. A decade ago, Australians were only taking 1.6 million overseas holidays a year." So, do cautious, nervous consumers really take more trips overseas, while saving more, or do confident consumers go offshore more regularly?

News Ltd's Terry McCrann wrote this morning: "BHP Billiton and Woolworths exactly capture the two faces of our 21st-century economy and the challenging – mostly – pluses, but also minuses, posed right now and into 2012. BHP approved $12 billion in major new projects in the financial year just ended. They'll be a breeze to finance with the money pouring in courtesy of China. Then there's Woolworths, easily the biggest retailer in Australia and by far the overall best guide to what the average consumer is feeling and actually doing." Good comment, the comparison between Woolies and BHP was ignored by others in the jottery.

And fellow Herald Sun writer, John Beveridge wrote this morning: "In the discretionary spending parts of the Woolies empire such as Big W, sales were down 0.8 per cent – not a bad result given the flagging sales at the more upmarket department stores. But in the really big-ticket areas of supermarkets (up 4.6 per cent) and petrol (up 9.9 per cent), annual sales were up a creditable amount despite the many headwinds posed by higher savings rates, natural disasters and consumers spooked by the carbon tax. That's a good result given the pitched battle to retain dominance against the fast-improving Coles supermarket chain and its big red "down, down" hands."

Buried in yesterday's BHP Billiton 2011 production report was this little gem picked up by Fairfax's Barry Fitzgerald: "BHP Billiton has unveiled a stunning $525 billion increase in the copper resource estimate at the Escondida mining complex in northern Chile. The 54 million tonne increase to 106 million tonnes of the red metal, worth more than $US1 trillion (before mining and treatment costs), means the operation could well be producing in 100 years time. The Escondida boost was contained in BHP's June quarter production report, released yesterday. The report was slightly better than the market expected, giving renewed confidence that BHP's June year profit – to be announced on August 24 – would weigh in at a record-breaking $US22 billion."

And The Australian's Nabila Ahmed says: "Peabody Energy president Rick Navarre has been busy telling Wall Street analysts and investors how confident he is of his $4.73 billion joint bid with ArcelorMittal for Macarthur Coal, but the idea of a rival bidder spoiling the party refuses to die. The shares have crept up to the $15.50 floor price set before the addition of the 16 cents-a-share dividend, and whispers suggest that Xstrata is the most likely rival bidder right now."

The Australian's Tim Boreham notes this morning: "Resource stocks may have been sold down over the last three months on all manner of anxieties, but that doesn't make them cheap. At least that's the view of the picky stock pickers at Perpetual's funds management arm, who argue that relative to offshore plays most of them are downright dear. Perpetual portfolio manager James Bruce says that of the 104 resource stocks in the ASX 300, only 30 are deemed to be worthy of investment."

Fairfax's Ian Verrender wrote this morning: "Macquarie Group supremo Nicholas Moore owes an enormous debt of gratitude to embattled media baron Rupert Murdoch. For most of the past fortnight, while the Dirty Digger has been subjected to the kind of media blowtorch his outlets regularly mete out to hapless celebrities and out-of-favour politicos, Moore has managed to maintain a relatively low public profile. That's been no mean feat. Macquarie's share price has been heading south at a rate of knots since mid April amid increasing speculation Moore will unveil yet another profit downgrade when he stands before shareholders at the group's annual meeting next Thursday."

The Australian's John Durie wrote on the paper's website yesterday that: "Macquarie Bank's Nicholas Moore can take comfort ahead of next week's AGM as Goldman Sachs cuts risk amid global uncertainty. Goldman last night reported its second-quarter numbers, which fell below estimates in part because of a sharp cut in bets the firm took in fixed income and commodities. Macquarie will hold its AGM next week and the market is expecting it to talk about a flat first quarter and more negative profit projections."

Finally, to Rupert Murdoch and Business Spectator's Stephen Bartholomeusz looked through the histrionics at the London appearance of Rupert Murdoch to make a very good point: "What the hearing did do, however, was to reveal a Rupert Murdoch who is a husk of what he once was; an ageing, diminished 80-year-old who had to be shielded from questioning by his 38-year-old son and from physical assault by his 42-year-old wife. While there was the odd glimpse of the steel that was once associated with Rupert, his performance and the need to shelter him from what were largely lightweight questions were at odds with his role as chairman and chief executive of one of the world's largest and most powerful media organisations. That will provide ammunition for those who believe that he has passed his use-by date and that there needs to be change at the helm of the company he created. The performance was a rather sad punctuation point in one of the great entrepreneurial stories." The AFR said this morning: "The stink of recent revelations will cling to Rupert Murdoch, his family and company for years, ensuring he is unlikely ever to return to the global media mogul club." Poor dear! And the AFR's Chanticleer columnist wrote this morning: "The regulatory framework that paved the way for Rupert Murdoch to put in place an inequitable capital structure at News Corporation remains in place in Australia."