Woolworth’s Q3 Update: Nothing Unexpected

Woolworths released its FY11 Q3 sales update today, reaffirming the latest guidance for FY11 NPAT to increase by 5% to 8%.  The market seemed to like the news, with shares up about 1% in today’s trading. Funny thing is, the update didn’t contain any unexpected news. 

Here’s a brief summary by segment: 

  • Supermarket sales are up in Australia by 5.6% (compared to the same period in FY10);
  • Petrol sales up by 13% – mostly due to increase prices;
  • General merchandise is up just over 3%, with Aussie electronics doing most of the heavy lifting by increasing 6.4%;
  • Hotel sales increased 6.5%;
  • The new home improvement division increased 27% as WOW gears up for an assault on Bunnings .

As I said, nothing out of the ordinary.  The Australia/New Zealand splits also tell a story that most readers of this blog would find familiar: 

  • NZ supermarket sales decreased 1.3%, whilst Aussie sales increased 5.2%;
  • NZ electronics sales decreased around 10%, whilst Aussie sales increased 6.4%.

NZ is obviously doing it tough when you see supermarket sales decrease.  The effects of the Christchurch earthquake and New Zealand’s anaemic economy have hit consumer spending hard.  They make their Australian cousins look like genuine spendthrifts and give some insight into what would happen to Aussie consumers should our housing market hit a correction.

Woolworths seems to be aware of the current consumer state of mind on both sides of the Tasman:

 The market continues to remain competitive with a less confident consumer who is spending less whilst having a greater propensity to save.  This combined with uncertainty around the level of inflation going forward, the risks of future rate rises, and a continuing strong dollar provides a platform for a potentially subdued trading environment particularly in the discretionary sectors.

The only real unknown was the impact of Christchurch’s earthquake on their NZ assets.  WOW advised costs will be incurred which aren’t covered by insurance, but have still maintained their NPAT guidance from the half year outlook.  It probably won’t make a big impact on the bottom line due to the relative size of Christchurch operations compared to all of Australia/NZ, but watch this space nonetheless.

Valuation

At Empire our WOW valuation sits at $30.50 and we believe the stock to be good purchasing at anything below $27.75.

Disclosure: The author is a Director of a private investment company (Empire Investing Pty Ltd), which has interests in the business discussed in this article.  The article is not to be taken as investment advice and the views expressed are opinions only.  Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Latest posts by __ADAM__ (see all)

Comments

  1. WOW is at at 10 year historical P/E low. definately one of the best times to buy in a long time. i am concerned about their me too hardware strategy just as aussie housing bubble is collapsing!

  2. Someone I work with visits your blog frequently and recommended it to me to read too. The writing style is excellent and the content is interesting. Thanks for the insight you provide the readers!