Woolworths sales update

The headlines might suggest otherwise but the world’s most profitable grocer is doing just fine, thank you. Woolworths' full year sales (adjusted for Easter and excluding petrol) for the year ending 30 June 2013 rose 5.6% to $52bn with sales from the all important Australian food and liquor division up 3.7% to $40bn.

The market was unimpressed by the result and pushed the share price down 2%, but considering annual price deflation of 2.9% it was an impressive performance. The company managed to squeeze 34 new supermarkets into its store network, and opened 16 Dan Murphy stores. Incredibly, there are now 897 Woolies stores spread across the country, suggesting new store openings will be limited. Fortunately, same store sales increased 2.7% across the board with meat, fruit and vegetables and seafood particularly strong.

Locked in fierce competition with arch (and, arguably, only) rival Coles, Woolies has invested heavily in marketing and lower prices. Customer numbers, market share and average spend per customer were all higher than last year. Competition is forging a better retailer. The only glaring disappointment came from discount retailer Big W, which registered a 4.1% decline in same store sales in the last quarter.

Masters, which has consumed so much media space, registered 47% sales growth as new stores were opened, though management has confirmed it will lose money until at least 2016. With sales from the core grocery and liquor business powering ahead, for now losses from Masters are a nuisance rather than a worry. We’ll update Woolworths in more detail when it releases full year results. The share price is up marginally since 18 Jul 13 (Buy - $33.24). BUY.   

Note: The model Income and Growth portfolios own shares in Woolworths.