Wesfarmers: 1Q sales

Wesfarmers reported first quarter sales for its retail businesses today. All eyes were on Coles to see whether it has taken share from Woolworths during the period. Same-store (or 'comparable') sales for the food and liquor business were up 3.6% over the quarter, perhaps a little higher than expected.

This suggests Coles is taking share and, somewhat ominously for Woolworths, chief executive Richard Goyder noted that Coles 'finished the quarter more strongly than it started'. We've argued that Woolworths will require time to change customer perceptions that its prices are high, so we'll be watching its sales results on 29 October closely. Wesfarmers couldn't resist taking a pot shot at Woolworths 'high/low' pricing strategy, noting that customers preferred Coles' 'everyday low prices' strategy across its range.

Elsewhere, Bunnings continued its remarkable performance, with first quarter same-store sales up 8.2%. Goyder pointed to the tailwinds from the housing market, however, and that Bunnings shouldn't be expected to grow at this rate forever. Bunnings continues to roll out stores, with 14 currently under construction.

Kmart was once again a standout, producing a same-store sales increase of 8.6%. Pleasingly, Target's turnaround showed early progress, with 3.2% growth in same-store sales. Some of Target's growth came from good apparel sales, however, which may have been partly driven by a colder-than-average winter.

We're due a comprehensive review on Wesfarmers over the next month or so, as there may end up being an opportunity in the stock if the grocery wars intensify. The share price is almost unchanged since Wesfarmers: Result 2015 from 21 Aug 15 (Hold - $40.81) and the recommendation remains HOLD.