A cautious first quarter sales report from the country’s biggest retailer, Woolworths, but one that makes clear the retail boom we’ve been experiencing since the start of the year is alive and well and high petrol prices are no longer bugbear. Inflation, meanwhile, seems to be easing for the retail giant.

Sales were up 8.9% from continuing operations for the three months to the end of September, with better than expected results from Big W and New Zealand Supermarkets. But comparable sales in the company’s heart, its Australian food and grog business, improved sharply on the first quarter of last financial year.

The company said same store or comparable store sales (which are adjusted to match like for like sales from the same number of outlets) jumped 7.9% from the 4.9% in the September quarter of 2006.

That’s a little down on the pace in 2007 and in the June quarter of the 2007 financial year. But the headline sales figure is well within the 7%-10% range for annual sales growth that was reaffirmed today. The shares were bid up to a high of $32.55 before the announcement at 11am, before they eased to $32.36 by 11.40am.

The sales figure is on forecast for most brokers, but it is a lot better than the first quarter of the 2006 financial year which was impacted by a two interest rate rises (May, August 2006) and sharply higher petrol prices. There was no mention of any change to earnings from the company, which disappointed some greedy investors who were looking for an early upgrade:

Whilst we are pleased with the momentum in the business, we are mindful that discretionary spending continues to be influenced by macro-economic factors such as fluctuating petrol prices and interest rate rises. We maintain our sales outlook for the full year where we expect sales from continuing operations to grow in the range of 7% to 10%.” the company’s CEO, Michael Luscombe said in a statement to the stock exchange.

Australian Food and Liquor sales for the quarter increased 8.7%. Comparable store sales in Australian Food and Liquor division for the quarter increased 7.6% (Q1 2007: 4.9%).

Inflation in the first quarter was less than 2%. The number of customers shopping with us has continued to increase reflecting their acceptance of ongoing improvements in our offer and recognition of its value,” the company said.

The inflation figure is at odds with the price increases for foods such as beef, sheep meats, grain and dairy products which showed up in yesterday’s Producer Price Indexes — they were up at 15.4% at the final stage of production, which is just before they move into wholesaling and retailing.

It could mean Woolies is using its buying clout to force the producers of meat (farmers) and dairy and grain products (bread and cake companies and milk and yoghurt makers) to absorb a lot of the price pressure being caused by the drought. That’s an area Opposition Leader Kevin Rudd has been exploiting before and during the election campaign.

Certainly that’s a claim some rural producers are making, especially lamb and beef cattle producers who have said Woolies is not paying market prices and forcing them to accept lower than market returns. Woolies said its New Zealand Supermarkets saw sales of $1.07 billion for the quarter, up 14.7% with comparable sales for the first quarter of 9.9%:

This result reflects the continued improvement in our supermarket offer through lower prices, improved value and range and the cycling of last year’s industrial action.

In New Zealand, our overall food inflation was approximately 2.4% which continues to remain below the general food CPI and reflects the continued investment in lower prices.

Woolies petrol business showed the impact of the higher Aussie dollar on oil and petrol prices:

Petrol dollar sales for the quarter, including Woolworths/Caltex Alliance sites, declined 0.8%, with average fuel sell prices well below the prior year.

However, comparable volumes had a very credible increase of 3.0% for the quarter. (Q1 2007: flat). Petrol margins in the quarter have been tighter reflecting an increased level of competitive activity in the market.

Well there was an inquiry into petrol pricing from the ACCC in the quarter but the biggest impact has been the strong Aussie dollar, which has averaged over 88US in the quarter by some estimates, which has more than offset near record oil prices around the world and high petrol prices in Asian markets.

The company’s general merchandise chain, BIG W saw sales grew by 16.6% during the quarter which is a very pleasing start to the year while comparable store sales for the quarter increased 9.6% (Q1 2007: flat).

Woolies claimed the “strong result was driven by the customer endorsement of the repositioning of BIG W undertaken to date. We will accelerate this repositioning over the 2008 year, which will include a relaunch of the BIG W brand beginning in late October 2007.”

But the real reason for the higher figure was the comparative effect. Big W took the brunt of the downturn in retail sales and consumer confidence in the first quarter of last year. Headline and comparable store sales were flat at best. With that impact now behind it and a more optimistic tone to consumer sentiment, despite the August rate rise, Big W sales have risen sharply, simply by being compared to such a miserable first quarter in 2006.