Woolworths sales up 4.7%

Woolworths Limited (WOW) released their full year sales results (end of June 2011) today and it makes for interesting reading.

The headline number is an increase of 4.7% in nominal terms on last year sales ($54.1 billion, up $2.4 billion). That’s an impressive result considering the flat line in other retail spending, as highlighted by Cameron Murray recently.

Breaking the sales figures into categories as follows:

  • Food and Liquor – up 4.3%
  • Petrol – up 9.9% (volume up 0.2%)
  • BIG W – down 0.8% (4Q sales up 5%)
  • Consumer Electronics – up 4.2%
  • Hotels – up 4.6%
  • Online sales – up 63% (no dollar amount given)

Some interesting notes include a subdued supermarket “shelf price movement index” of 2.6%, mainly through produce (fruit and veg) inflation, but when promotions are added (and excluding tobacco), prices deflated by 3.3%

Deflation was also rampant in the BIG W retail sector, averaging 6 to 9% year on year, mainly through the high Aussie dollar.

Average national fuel prices increased from 124.1 cents per liter to 131.2 cents. Again, thank you Aussie dollar – because that rise would have been substantial given oil increased from average of $75 USD per barrel to over $90 USD per barrel in the same period.

Overall this is a good result for WOW, and should bode well for the full earnings result expected on the 25th of August (with a possible earnings guidance coming in shortly).

The next hurdle for Woolworths is its roll out of “big box” DIY stores, under the “Masters” brand, going up against entrenched competitor Bunnings. Whether this sales success can continue in this market is yet to be seen.

Empire Investing currently values WOW at $30.50, with a maximum buy price of $27.50 (using a 10% margin of safety). WOW is trading at $27.40 before midday at a 4.4% dividend yield (and 15 times trailing earnings).

For a full valuation of Woolworths, click here.

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    • Very interesting. I didn’t mention this in the retail post, but basic consumer theory would suggest that businesses selling inferior goods actually do quite well during economic downturns.

      For example, home cooking is inferior to dining out – if cafe and restaurant sales are down, people obviously are buying more food at the supermarket (the inferior choice).

      Same goes with alcohol consumption at pubs and bars, and the choice to buy alcohol from the local bottle-o.

      Of course, applying this basic theory in practice is difficult, since supermarkets themselves sell luxury (name brande) and inferior (home brand) goods. If people are also saving money by choosing home brand instead of name brand, this has an impact on turnover and profit.

      Exactly how these adjustments affect profits is extremely uncertain (to an outsider at least).

      What is nice to see is deflation occuring in supermarkets and department stores.

      • Sandgroper Sceptic

        Amen to deflation!

        Mate you obviously aren’t in Perth, here a steak in an average cafe costs north of $40! The superior good (or experience if you prefer) is to buy a decent piece of beef from your butcher and cook it at home (and cheaper as well).

        Also home brands versus branded goods do not really apply to staples like flour…flour is flour whether home brand or branded. Coles has been pushing hard in this area, by lowering prices on such staples. I can’t really accept that a home brand here is an inferior good.

        • I agree. To me flour is flour – same with many foods. In fact, I often do blind taste tests with friends just to prove that paying more for name brand does not mean you are buying a better product.

          While in some cases there are noticable differences, home brand wins more than 50% of the time. Notable wins are for ALDI brand energy drink against Red Bull, and home brand baked beans against Heinz.

          But the very existence of more expensive brands of these products tells me that they are superior – whether that claim is the result of a marketing campaign, or the actual product itself.

          Remember, inferior goods have a very specific definition in consumer theory (nothing to do with value for money) which is not necessarily consistent with common use.

          • Yes. But is the sale of more home brand goods an inferior result for Woolworths? Or not?

            Does it deliver a greater profit margin?

            Else why would they push them so hard?

    • BIG W – down 0.8% (4Q sales up 5%)

      Looks like people are seeking the cheaper option (stretched).

  1. Whats the outlook without gaming going forward for WOW. With the pokie law changes seemingly off the front pages, will this materially effect WOW’s results if/when it is brought in?

    • That’s a good question Matt – WOW is a major owner of pokie machines.

      Speculating, but I doubt anything will be done, but it pays to look at the impact nonetheless. I’ll ask “new Dad” Q Continuum to have a look at our research in this regard (he’s off deck for awhile).

    • What is not spent on the poker machine will be spent in the supermarkets/liquor stores. WOW is somewhat hedged.

  2. What percentage of the increase occurred in the the six months to June 11 as opposed to the six months to December 10?

  3. So glad the retailers are getting smashed. Let’s drop rates so they can grow at 8% next year?

  4. Woolies is on the downslide, people will be kookin some grasshoppers, ants, and rat in the future…no need to visit wollies.