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Woolies food sales beat expectations

AAP logoAAP 27/10/2016 Petrina Berry

Woolworths' underlying food sales have grown for the first time in almost two years after the supermarket giant spent $1 billion in lowering prices.

Woolies' crucial comparable food sales, which removes one-off events including store openings and closures, grew 0.7 per cent in the first quarter of 2016/17, beating analysts' expectations of a 0.4 per cent rise.

It's the first rise in comparable sales since the second quarter of 2014/15, although fierce rival Coles was still growing comparable food sales faster pace - at 1.7 per cent in the first quarter.

Woolworths' total food sales rose 1.7 per cent to $9.32 billion in the 14 weeks to October 2.

Chief executive Brad Banducci described the growth as modest and said a revamped customer loyalty program had yet to materially affect sales despite having "resonated" with shoppers.

"We have been seeing gradual and consistent improvement in our business since May," Mr Banducci said.

"We have a long way to go. We are cautiously optimistic. It's nice to have a little bit of momentum."

He said Aldi's recent expansion beyond the eastern states and into SA and WA did not have as big an impact on Woolworths as he had expected.

"We have been impacted but we have not been impacted to the extent that we have expected or budgeted," he said.

Woolworths' food prices, on average, went down 1.9 per cent in the quarter, led by price cuts to groceries and bakery goods. Excluding tobacco, average prices were down 2.8 per cent.

Mr Banducci said the group's overall first-half performance would hinge on sales over the Christmas period.

The group, which also owns BWS and Dan Murphy's, reported a 3.8 per cent lift in liquor sales to $1.97 billion, with comparable sales up 1.8 per cent.

But sales at its petrol stations fell 11 per cent to $1.18 billion, largely due to lower fuel prices.

Discount department retailer BIG W continued to perform poorly, with sales down 5.5 per cent at $880 million and comparable sales falling 5.7 per cent.

BIG W chief executive Sally Macdonald said it was a sluggish quarter market-wide for apparel, with a modest second-half improvement in apparel expected as BIG W transitions to directly sourced and designed clothing.

"We are making inroads but the outcome of all that good work won't be seen for some time," she said

As for home improvement, Mr Banducci said the sale of Masters' stock was proceeding well as the December closure of its stores approaches but declined to comment on how talks with former partner Lowe's were going.

As well as selling Home Timber and Hardware to Metcash this month, Woolworths is also negotiating with bidders, including fuel partner Caltex, a potential sale of its petrol stations.

Shares in Woolworths closed down 57 cents, or 2.3 per cent, to $24.23.

CMC Markets chief market strategist Michael McCarthy said the market reaction reflected the task ahead for Woolworths.

"While there was an initial cheer that Woolworths has returned to comparable sales growth, it has dawned on the market that Woolworths is still in a difficult place," he said.

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