It’s Raining Sales for Supermarket Companies - Coles Versus Woolworths

Two Retailers

Coles Group & Woolworths Group are similar in many ways with supermarkets and liquor businesses. However, there are differences as well, including the presence of Woolworths in New Zealand which is not the case with the Coles Group.

Coles Group does not have apparel retailing business while Woolworths operates apparel business in its BIG W division. Further, Coles operates fuel retailing business while Woolworths does not operate fuel business anymore. More importantly, Woolworths has scheduled an Extraordinary General Meeting to approve the demerger of Endeavour Drinks and ALH from the group on 16 December 2019.

Stock performance

1Q Sales Metrics

Coles Group Limited (ASX: COL)

First Quarter Sales Results

On 29 October 2019, the group notified the market with the first quarter sales report for 2020, producing 48^th successive quarter of comparable sales growth. In the first quarter that ended on 29 September 2019, the group recorded total sales of $8.7 billion in the first quarter compared to $8.54 billion in the previous quarter.

Q1 Sales (Source: Company’s Announcement)

Supermarkets

In Supermarkets, the division achieved sales revenue of $7.7 billion, up 1.6% over the prior corresponding period. During Q1 FY 2020, the comparable sales growth was 0.1%, driven by new products, Little Shop 2 campaign, Good Things, Great Value campaign and additional investment in flybuys.

Further, the own brand sales revenue grew by 4.7% in the first quarter with composition at 30%. The long-term effects of the drought have contributed to price inflation for the quarter of 1.4%. Excluding the inflation in tobacco and fresh, the price inflation for the quarter was 0.2%.

The division opened an additional Format A store at The Glen in Victoria, and Eastgardens in New South Wales continues to deliver incremental sales. In Victoria, the division completed four new Format C stores, and the efficiency gains are noticeable. Overall in Supermarkets, the division opened 4 supermarkets, completed 10 refurbishments, and closed one store, ending the quarter with 824 supermarkets.

Liquor

In Liquor, the sales revenue for the quarter was $726 million, up by 3.5% over the prior corresponding period with a comparable sales growth of 0.7%. Although, the comparable sales growth was hampered by public holidays in Queensland, New South Wales, South Australia and ACT.

Further, the sales performance was driven by a strong performance of First Choice and contributions from Exclusive Liquor Brands, which was offset by soft performance in Liquorland.

In addition, the growth continues in the online channel, and website upgrades are planned by the division. The extension of UberEats trial from Supermarkets into Liquor started during the quarter. Further, during the quarter, the division opened 7 new stores and closed three stores, ending the quarter with 914 retail liquor sites.

Express

In Express, the convenience (c-store) sales revenue for the quarter was $264 million, up 3.1% over the prior corresponding period, and a comparable c-store sales growth of 0.4%. These results were driven by Little Shop 2 campaign, partially offset by a decline in tobacco sales.

During the quarter, the fuel volumes rose by 1.4%, depicting the first quarter of fuel volume growth in four years. This result was driven by competitive fuel pricing and Little Shop 2 campaign. The division opened one new site, taking the total network to 715 sites.

On 30 October 2019, COL last traded at $14.84 down by 1.133% relative to the last close.

Woolworths Group Limited (ASX: WOW)

First Quarter Sales Results

On 30 October 2019, the retail giant reported its first quarter sales result for the period ended 6 October 2019. The total group sales from continuing operations reached $15.9 billion compared to $14.85 billion in the previous corresponding period, depicting an increase of 7.1%. In addition, the group online sales increased 37.4% to $802 million. Let’s discuss each segment of the group.

First Quarter Results (Source: Company’s Announcement)

Australian Food

In Q1 FY2020, the division achieved total sales of $10.7 billion, increasing 7.8% over the previous corresponding period from $9.9 billion. The comparable sales increased 6.6% with comparable item growth of 4.7% over pcp.

The group has cited the impact of drought, primarily resulting in the highest rate of inflation in meat, deli and bakery. The average prices climbed up by 0.3% in the quarter while food and vegetables posted deflation.

At the quarter-end, the division was operating 1,027 stores, and it opened one Woolworths supermarket and one metro food store. The division also progressed with Fresh Made Easy roll out, which is in the final stages of implementation across the network.

Further, the online platform WooliesX delivered strong sales with record levels of visits across digital platforms. The sales growth was underpinned by Lion King Ooshies, the launch of Discovery Garden campaign, and pick up growth.

New Zealand Food

In NZ Food, the total sales increased by 4.6% to $1.8 billion with an increase in comparable sales of 4.8%. This result was credited to strong trading across Fresh, Health and Our Brand, and ensuring higher availability across stores. In addition, the campaigns were also responsible for the sales growth from Disney Words campaign, and the new Great Price program.

In Q1 FY2020, the online sales grew 38.4% with an increasing focus on the connected consumer experience and same day convenience. The average prices increased by 0.5% in the quarter due to inflation in perishables and meat categories.

Endeavour Drinks

In Endeavour Drinks, the total sales increased by 4.9% to $2.2 billion with comparable sales growth of 3.2% over pcp. Beer and spirits led the growth across all major categories, and BWS and Dan Murphy’s reported higher comparable sales.

In Q1 FY2020, online sales increased 20.7% over the previous year, and new apps were launched for Dan Murphy’s and BWS with early positive feedback from customers on personalisation and experience. A partnership with Uber Eats was launched in Victoria for BWS, offering delivery at around 200 stores.

In addition, the division relaunched Dan Murphy’s loyalty program (My Dan’s), and membership grew to over 3.7 million. The division announced the acquisition of Chapel Hill Winery.

At the quarter-end, BWS was operating with 1,352 stores with the opening seven new stores, and Dan Murphy’s was operating 230 stores.

BIG W

In BIG W, the total sales increased by 2.6% to $926 million with comparable sales growth of 4.4%, posting a sixth consecutive quarter of positive comparable sales growth. All segments delivered comparable sales growth except for Leisure, which was impacted by a slowdown in gaming, Audio-Visual and DVDs.

In Q1 2020, the division launched a new brand platform ‘Every day’s a big day’, and the Free Books for Kids initiative was continued. The BIG W store network operated 183 stores by the end of the quarter with no new additions.

Hotels

In Hotels, the sales increased by 5.5% with an increase of 3.6% in comparable sales over pcp. The comparable sales were propelled by refurbishments, promotional activity, and key sporting events. In addition, the number of hotels was the same at 328 during the quarter.

Salary Matter

In addition to the first quarter sales results, the group released a statement regarding salaried team members. The retailer had said that the review had found that the salaries of store employees working in Supermarkets division and Metro Stores was not consistent with the provisions of General Retail Industry Award.

Further, the number of team members is approximately 5,700. However, the group remains committed to rectifying these payment arrears in full, and corrective plans are in place to ensure compliance going forward.

Meanwhile, the group would be making payments including, back payments with interest and superannuation contribution before Christmas to the affected employees at Supermarkets and Metro for the period between September 2017 - August 2019.

Besides, the group has extended the review process to all its businesses in Australia. It is estimated that the remediation cost would be in a range of $200 to $300 million before tax. The group would be providing additional information in the disclosure of the interim result in February.

On 30 October 2019, WOW last traded at $37.2, down by 1.4% relative to the last close.

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