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Woolies expected to show sales are turning

AAP logoAAP 25/10/2016 Petrina Berry

Analysts are expecting Woolworths' first quarter sales to show signs the business is turning around when it posts results this week, while rival Coles' strong growth is expected to ease.

Woolworths will reveal its first quarter sales results on Friday, two days after rival Coles, owned by Wesfarmers, releases its numbers for the same period.

Woolworths' share price has rallied in the past two months on expectations same-store food and liquor sales, a key measure of revenue growth, will rise in what will be the first quarterly increase since the third quarter in 2014/15.

Analysts are hopeful Woolworths' comparable sales have remained in positive territory for the quarter after the retailer in August said the first eight weeks of 2016/17 had shown a 0.3 per cent lift in comparable sales.

Deutsche Bank is forecasting Woolworths' comparable food sales to lift 0.4 per cent.

"This metric will be the key focus of the market," Deutsche Bank analysts said in a note.

"A negative print would be taken very poorly in our view and, conversely, any improvement could get the market excited that the group is turning."

IG chief market strategist Chris Weston said Woolworths' share price was trading at a premium and any disappointment could lead to a sell-off.

People would also look for any slowing in discounting, because better signs on pricing will feed into profitability, he said.

Meanwhile, analysts expect to see a slowdown in sales growth from Coles on the basis that Woolies has improved.

"Industry feedback suggests Coles may have suffered a modest slowdown but has remained aggressive in an effort to maintain momentum," Deutsche Bank analysts said.

Citi senior analyst Craig Woolford said Coles' sales momentum is expected to have slowed due to a moderation in market share gains, but gains from less discounting are expected to provide an offset.

He said Wesfarmers' other retail units, Bunnings and Kmart, were expected to continue to perform strongly, while Target was expected to continue to struggle.

Shares in Woolworths closed four cents, or 0.2 per cent, higher at $25.25, while shares in Wesfarmers closed 29 cents, or 0.7 per cent, weaker at $43.96 on Tuesday.

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