More customers are choosing to shop at Woolworths than Coles after the supermarket giant’s heavy food discounting and major revamp of its own brands pays off.
Like-for-like food sales rose 6.4 per cent at Woolworths in the final three months of its 2016/17 financial year, better than market expectations of 5.7 per cent.
It was the third consecutive quarter in which Woolworths outpaced Coles in like-for-like sales growth – sales at Coles edged 0.7 per cent higher in its fourth quarter.
Woolworths chief executive Brad Banducci said the company is attracting more customers and they are now buying more each time they visit.
“The growth was on the back of more customers shopping more frequently at our stores,” he said.
“Only recently have we also seen items per basket come back.”
Woolworths spent more than $1 billion on lowering grocery prices in the past three years, and has reduced its product range, including a rebrand of its privately owned labels that Mr Banducci said was the country’s biggest ever by a retailer.
He said he was confident prices at Woolworths are competitive but he believed the public still needed some convincing.
“While we feel we are in a good place on price as of today, who knows what the future holds,” he said.
Mr Banducci also said price cuts by the supermarket giants will be more rational in the year ahead.
Woolworths expects food sales growth will not continue at the same rate as in the fourth quarter, though its like-for-like sales in the first eight weeks of the 2017/18 financial year were broadly in line with the second half of 2016/17.
The group made an underlying net profit of $1.42 billion in 2016/17, below market expectations of $1.47 billion, due to discount store Big W’s $150.5 million loss.
Mr Banducci said Big W’s performance, including a 5.8 per cent fall in sales, was “extremely disappointing”.
However, Woolworths’ $1.53 billion statutory net profit was a sharp bounce back from the previous year’s writedown-heavy $1.23 billion loss.
Analysts from investment bank Citi said the group’s core supermarkets business was strong with earnings beating forecasts but Big W remained a problem.
“We expect the market to respond favourably to the food (like-for-like sales) and margin performance in 2H17,” Citi’s team said in a note.
“Upgrades to consensus (FY18 estimated) food earnings are likely to be partly offset by downgrades to BIG W earnings.”
Shares in Woolworths rose more than one per cent in morning trade but fell throughout the day to close down 12 cents at $26.94.
SOARING GROCERY SALES DELIVER FOR WOOLWORTHS:
* Full-year profit of $1.53b, versus $1.23b loss
* Revenue up 3.7pct to $55.9b
* Final dividend up 17 cents to 50 cents, fully franked