By Myra P. Saefong
After turning in better-than-expected sales for the last
quarter, Australian supermarket giant Wesfarmers Ltd. appears to be
gaining on its main competitor Woolworths Ltd., analysts said.
Wesfarmers reported a fiscal first-quarter rise in its retail
sales Friday, lifting the conglomerate's stock price to its highest
level in a year and contributing support to broad gains for major
stock market benchmarks across Asia.
"The market is loving the Wesfarmers trading update, which now
shows it's holding its own against rival Woolworths," said Ben
Potter, a research analyst at IG Markets in Melbourne.
Wesfarmers Ltd., one of Australia's largest retailers, saw a
7.3% rise in total food and liquor sales at its Coles supermarket
chain for the quarter, with comparable store sales -- which cover
stores open at least one year -- up 6.1%, according to an investor
briefing presentation released Friday.
Analysts at Citigroup had been expecting Wesfarmers to see a
quarter-on-quarter slowdown in sales trends for the first quarter
for most of the retail segments, according to a research note
issued Thursday, ahead of the latest results.
The analysts had expected a smaller first-quarter comparable
store sales growth of between 4.5% and 5.5%.
The better-then-expected results lifted Wesfarmer's share price
to as high as 28.54 Australian dollars ($26.45) as of late morning
trade, a fresh 52-week high.
Rival Woolworths Ltd. saw its stock rise 0.2% to 29.46
Australian dollars.
The gains reflected overall strength in the S&P/ASX 200
Index, which climbed as high as 4,868.00 to trade near its own
52-week high of 4,895.30. In late morning trading, the benchmark
was up 0.9% at 4,854.90.
And in wider regional trading, Japan's Nikkei 225 Average
climbed 0.6% by the end of the market's morning session, with
shares of Japan's largest supermarket chain Aeon Co. Ltd. up
1.1%.
South Korea's Kospi rose 0.5%, Singapore's Straits Times Index
rose 1.1% and Taiwan's Taiex gained 0.3%. Hong Kong's Hang Seng
Index tacked on 1.5%.
Besting estimates
Wesfarmers said Friday that food and liquor sales were driven by
double-digit volume growth and higher customer transactions. Fuel
and convenience comparable shop sales also climbed 6.5%, with
comparable fuel volumes up 1.3% for the quarter.
Ahead of the first quarter sales result, analysts at Citigroup
said "Coles faced challenges with a change in its promotional
ticket displays impacting July and August sales."
But on Friday, Wesfarmers said its customers' response to the
roll-out of store renewal formats was "very encouraging" and a
further roll-out was planned for fiscal 2011.
"Consumer sentiment [is] improving, but customers remain value
conscious" and cautious about rising interest rates and higher
petrol prices, it said.
Potter said that although Wesfarmers has been long considered a
second-rate competitor, "today's sales result is confirmation the
company's turnaround strategy is gaining traction and beginning to
yield results with comp store sales at Coles outperforming
Woolworths."
"This is a real boon for the new supermarket management team,"
he said.
On Aug. 19, Wesfarmers posted a fiscal 2009 profit of 1.54
billion Australian dollars -- an increase of 44% from a year
earlier. It attributed the result to "significant revenue and
earnings growth in the Resources, Coles, Bunnings and Target
divisions."
Rival Woolworths announced on Oct. 20 that its first-quarter
sales increased by 7.4%, excluding fuel sales, and by 4.2% if
including fuel sales. It also said Australian food and liquor sales
for the quarter climbed 7.8%, with comparable store sales in
Australian food and liquor up 5.8%.
"The stock has underperformed both the market and Wesfarmers,
and is likely to continue to do so, as sharp upward re-ratings are
unlikely following this result," Potter said in a note to clients
Tuesday, shortly after Woolworths announced its sales results.