Woolworths reports sales numbers

Woolworths reported its third-quarter sales results today. All eyes were on the numbers from the Australian food and liquor business, with Easter-adjusted same-store sales falling 0.9%. That compares with a 0.6% decline in Woolworths' second quarter, and Coles' third-quarter same-store sales growth of 4.9%.

It's more of the bad news we've been warning you to expect. But the figures should be kept in perspective – sales are declining partly because management wants them to. Woolworths is cutting prices to attract customers; excluding tobacco prices fell 3.5% in the period.

Before today's interest rate cut lit a fire under the market, Woolworths stock was down 3.6% at its lowest point. The reason was that management flagged it would invest an additional $150m in prices, service and loyalty (some of which it hopes to claw back next financial year, according to the conference call).

'Aggressive competitor activity' is apparently the reason, which suggests tit-for-tat price drops are becoming more common. Witness the $3 cut to roast chicken prices at both Coles and Woolworths earlier this year (as long as you don't buy free range).

Elsewhere, Big W reported a weak 4.5% decline in same-store sales. New chief executive Sally MacDonald was quick to blame previous management for poor merchandising decisions, although warm autumn weather isn't helping either (as we've seen with Myer). Big W now expects to report a small loss in 2016.

Despite all this, new managing director Brad Banducci was reasonably upbeat on the conference call. There's usually a lag between business improvements taking place and the effects showing up in financial results, which we'll explore in a full review next week. Today's sales results don't change our long term view. BUY.

Note: The Intelligent Investor Equity Income Portfolio owns shares in Woolworths. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.