Coles has posted a weaker than expected fourth quarter food and liquor sales result amid declining prices and consumer confidence in financial 2011.
But the grocery giant says its supermarkets grew at about twice the rate of rival Woolworths, once the liquor businesses are taken out of the equation.
Shares in Wesfarmers, which owns the Coles supermarket chain, fell four per cent on Thursday before recovering to finish two per cent lower.
CBA equities analyst Andrew McLennan said the reported increase of 6.7 per cent for Coles fourth quarter food and liquor sales was a “good result”.
“It’s just that in terms of our forecasts, it was just a little bit hotter than that,” Mr McLennan told AAP. “We’re only talking about one quarter here, so the real impact on earnings is going to be relatively immaterial. It’ll be a slight earnings downgrade.”
Mr McLennan said the market had responded by selling down the stock, but the initial four per cent fall was probably an overreaction.
Wesfarmers conceded the liquor market had been “challenging” and said Target sales fell 1.2 per cent, while Kmart sales rose just 0.4 per cent in a tough year for discretionary products.
The group’s food and liquor divisions recorded a 6.3 per cent increase in sales to $25.025 billion for the same period.
Analysts report that sales at Wesfarmers’ Vintage Cellars and Liquorland stores have stalled as the liquor market weakens, particularly in relation to beer sales.
Wesfarmers managing director Richard Goyder said the group’s retail business delivered a solid performance during the year in a period that had brought challenging conditions for retailers.
“If you remove all the noise, Coles supermarkets grew at about twice the rate of its major competitor at the last quarter,” Mr Goyder told analysts.
However, he refused to provide any commentary on current trading or the company’s outlook until Wesfarmers reports its full year results on August 18.
Coles recorded food and liquor price deflation of 0.3 per cent in the financial year, despite the impact of higher excise on tobacco products and the impact of recent floods on fresh food prices.
Price deflation at Target constrained sales, despite solid underlying transaction growth, and flat sales at Kmart came as investment in everyday low prices offset increased volumes.
“We’re not unhappy about where those stores are, but it’s a more challenging environment than we expected,” Mr Goyder said.
He also predicted price declines at Bunnings over the next six months, but painted a rosier picture in other areas such as Wesfarmers’ home improvement and office supplies divisions, where sales rose 5.4 per cent to $8.24 billion.
Total sales at Bunnings were up 5.7 per cent for the year, following 10.4 per cent growth last year.
Officeworks achieved 4.4 per cent growth in total sales for the year due to strong transaction growth despite volatile trading conditions.
Wesfarmers shares lost 72 cents, or 2.4 per cent, to $29.37 on a day when the overall sharemarket fell 1.6 per cent.
AAP
