Woolies first, then Coles, but guess who’s got the growth?
Woolworths will be first cab off the rank with its earnings release next Monday week and Coles Myer follows in early October. The contrast will be fascinating for the changed dynamics in Australian retailing.
In fact its going to be the most interesting time in retailing for ages. On the one hand the super confident Roger Corbett will be defensive and attempt to look forward and not at the company’s poor performance in the year just gone.
On the other it will be a very much restrained and modestly confident John Fletcher from Coles who won’t go overboard, but will clearly be tickled pink that the much-derided petrol play has paid off big time, even if it will inevitably slow over the next year or so from its frenetic surge this past year.
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The Woolies chief will attempt to use the inevitability of this slow down as the bone to investors to focus on while he argues that Woolworth’s momentum will look good once Coles Myer loses its petrol oomph
At Woolies Roger Corbett will be trumpeting bigger earnings from a smaller sales base, but he will be a little defensive about the bid for Australian Leisure and Hospitality with hotel magnate, Bruce Mathieson. That’s unless he and Bruce have lifted their miserly $2.75 a share offer that ALH knocked back again this week, by then.
But when it comes to discussing the nitty-gritty of the earnings and the sales result Roger will be upbeat, but hesitant to go into too much detail, simply because the sales result, compared to Coles and virtually every other Australian retailer, is not good and certainly no where near the level Roger set a year earlier.
The only positives for Woolies from its sales figures were the continued strength of Big W and the electronic stores businesses in Dick Smith and Tandy.
In the core supermarkets and liquor business, and in petrol it was slowing growth, especially in same store sales figures which could be described as having ‘plunged during the year. Same store growth in supermarkets in the fourth quarter of 2.7% on an annual rise of 4.6%, compared to a peak in the third quarter of 5/7% in the top line number and 3.8% in same store sales..
At Coles’ supermarkets business the contrast was quite noticeable. Top line sales growth was 8.5% and comparable growth was 4.3%.(9.4% in the fourth quarter in top line sales and 6.2% in same store same). Much, much better than Woolies bigger supermarkets business.
As well the Coles petrol business (Coles Express) is growing so rapidly, that even if it slows it will have annual sales of more than $3.5 billion by the end of this financial year. That would make it bigger than either Myer/Megamart or Target in terms of pure sales.
Woolies on the other hand will be lucky to hit $2.6 billion or thereabouts this year from the $2.2 billion sold in 2003-2004 as its joint venture with Caltex slowly takes shape. Woolies’ convenience store sales are also much lower than those through Coles Express, another reason why the petrol offer from Roger Corbett’s group is struggling.
All those months in getting every detail right has certainly paid off for Coles and the petrol and convenience store business. It took the best part of two years to plan and get to this stage. But in fact the alliance with Shell was only sorted out and finalised in May of 2003, with the first fuel sold in late July, just over a year ago.
In that time Coles Express sales have exploded, totalling $3.17 billion in the year to June, and $1.27 billion in the fourth quarter alone.
In contrast Woolies first entered the petrol market in the mid 90’s and had the field to itself, growing rapidly until late last year when growth stalled as the Shell offer from Coles grew.
The Coles Express business would have had to have been the fastest growing business we’ve seen in this country for years. It’s accounted for almost 60% of the $5.2 billion rise in Coles Myer’s sales in the year. Without Coles Express, sales would have been just short of the $30 billion mark, but a great deal less because of the impetus the fuel discount has given to supermarket business.
Woolies is more than $4.3 billion behind in sales overall, so there wouldn’t have been much difference if Coles Express sales of $3.17 billion were not on Coles’ books.
Target has superior top line and comparative store sales growth than Woolies Big W chain, while Kmart and Officeworks underperformed in comparison. It would seem that it’s the Kmart business that is holding back Officeworks which has grown quickly to more than a billion dollars a year in sales.
Myer was a laggard, sales up 2.2% for it and Megamart (which isn’t a performer of any note) and 2% in same store terms. Not brilliant, but Coles Myer says there are signs of life from the big revamp being run by CEO, Dawn Robertson.
Overall sales at Coles rose 19.4% in the year to June to $32.26 billion, while at Woolies it was a more modest 6.7% rise to $27.93 billion.
Coles can’t hope to repeat that explosive growth in the coming year and will come back to the pack. That is what Roger is counting on.
Coles is looking for earnings of around $565 million, but Woolies will show its superior profitability (and absence of the sluggish Myer Megamart operation type retailing business) and report earnings around $690-$700 million, up a company estimated 12% to 15%.
These are very good results, and yet the market didn’t much like the Coles Myer numbers of Thursday. Yet another example of the irrational but everyday ‘buy on the rumour, sell on the fact’ approach to investing.