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Supermarket giants to bare price war toll

AAP logoAAP 22/08/2016 Petrina Berry

Woolworths' multi-million-dollar turnaround plan could be hampered by falling food prices amid stiff competition, analysts warn, but they are more upbeat about its rival, Coles owner Wesfarmers.

Beleaguered Woolworths is expected to unveil a $1 billion annual loss on Thursday, the slump linked to an already announced $959 million in restructuring costs and impairments from its failed Masters hardware chain.

Analysts say the focus will be on its food and liquor sales, in particular the key comparable sales growth figure for the final quarter of 2015/16 after Woolworths revealed a first-half $972.7 million loss in February, its first loss in more than 20 years.

Forager Funds senior equities analyst Daniel Mueller says investors will be looking for signs that Woolworths' aggressive food and grocery price cuts are luring shoppers away from competitors.

"People will be looking for signs that the price cuts have resulted in sales growth in the fourth quarter," he said.

"And, whether customers are coming back to them."

Bell Direct equities analyst Julia Lee said the market had already priced in a statutory loss and taken into account Woolworths' turnaround plan after it was announced in July.

"The big question is whether all the bad news has been priced in the stock and whether there's potential upside or more pain to come," Ms Lee said.

She said Australia's official retail numbers in June showed supermarket food prices were down 0.5 per cent amid fierce competition between Woolworths, Coles, Aldi and the independents.

"In this environment, Woolworths' turnaround could take longer than expected," she said.

Woolworths has forecast earnings before interest and tax will be between $2.55 billion and $2.57 billion for 2015/16.

Recently-installed chief executive Brad Banducci in July announced at least 500 job losses, plans to close loss-making stores and a slowdown in new store openings across the group, while it continues to try to offload its failed Masters hardware chain and Home Timber and Hardware business.

Meanwhile, analysts are more upbeat about rival Coles, whose parent company Wesfarmers reports its full-year results on Wednesday.

Mr Mueller said investors were keen to see whether Coles has sustained its strong sales growth amid the price cutting across the supermarket sector.

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