Updates: Weak Sales From Woolies; Bradken, Boral Cut Profit Forecasts.
April 23rd 2012 – Australasian Investment Review – (AIR)
Further evidence that Woolworths has lost its way could come tomorrow when rival Coles’ third quarter sales figures are released by parent Wesfarmers.
Analysts reckon Coles will show sales growth of 4% on a headline basis and same store growth of around 2-3% in its key supermarkets business.
That will be ahead of Woolies which surprised the market on Friday with topline sales growth of 2.9% for its supermarkets business, but no growth at all on a same store basis.
That was the weakest quarterly growth for 7 years, and when liquor is taken out, same store sales actually fell under the pressure of lower prices for fruit and vegetables.
It raises the prospect that Woolies might struggle to meet its reduced earnings growth guidance for the year of 2% to 6%, but there was no sign of any change from the company in Friday.
Overall, Woolies revealed a 3% rise in group sales to $14.072 billion, and a 2.9% gain to $9.4 billion for its Australian supermarkets (food and liquor).
The flat growth in same store sales was well down on a 3.3% improvement for the third quarter last year.
The weak quarterly sales performance for its supermarkets division was an outcome of the wet and mild weather across much of the country and average price deflation of 4.4%, thanks especially to lower prices of fruit and vegetables.
“Comparable store sales in Australian food and liquor for the third quarter were flat despite the growth in customer numbers and units sold,” Woolworths said in Friday’s statement.
Woolies said the latest third quarter compared to the same quarter of 2011 which saw a surge in sales in the prior quarter because of panic buying ahead of floods in Queensland and Victoria and cyclone Yasi in north Queensland.
Woolworths’ Big W chain lifted sales 1.4% $931 million. Consumer electronics sales in Australia from its Dick Smith stores fell 1.7% to $296 million.
Woolworths is still looking to sell Dick Smith. Same store sales for the quarter were also lower.
Comparable sales fell 0.9% for the quarter, compared with the sharp 2.7% drop in the same quarter of 2011.
The retailer said it remained cautious about the fourth-quarter amid a tight spending environment and weak consumer confidence.
Seeing it has already expressed a cautious view on 2011-12 earnings, we shouldn’t be holding our breath for a surprise in the 4th quarter.
The company has forecast a rise in earnings of 2 to 6%.
The market shrugged off the news and the shares rose 3c to $25.88 while Wesfarmers shares rose 12c to $29.47.
Overall, you could say that Woolies is yet another victim of the impact of the floods and bad weather in Queensland and parts of Victoria and NSW in the past year.
A worry for some analysts was the confession by the company that the roll out of Masters hardware outlets is slower than expected.
Slow planning and approval processes are being blamed for the delays.
The company (and its US partner, Lowes), has so far opened 10 of the expected 150 new Master’s stores.
The cost for Woolies is put at $1.5 billion, but some analysts say that is money the company could have repaid shareholders in another buyback.
The comments from management about the delay will only increase investor scepticism about the move into hardware.
And while Woolies stood firm in the face of weak sales data, metal basher and mining equipment maker Bradken has cut its full year profit guidance due to increased costs and lower sales in its rail division.
The news saw Bradken shares lose 13%, or 91c, to $7.55.
Bradken had previously forecast profit growth in the 2011-12 financial year of 35% to 40% from the 2010-11 result.
But on Friday it said full year net profit was now expected to be up 13% from the previous financial year, to between $95 million and $102 million.
Full year earnings before interest, tax, depreciation and amortisation (EBITDA) were expected to between $210 million and $220 million, also lower than previous guidance.
The guidance was cut because of a $35 million fall in sales in its rail division, plus a $16 million increase in the division’s costs.
Two new contracts required new designs for production, which led to a delayed start to manufacturing and increased re-work costs, Bradken said in a statement.
New part suppliers were also required, causing further delays and higher costs, it said.
“The affected projects will be largely completed by June 30, 2012 and costs are expected to return to normal levels in the 2013 financial year,” Bradken said in the statement.
All other business divisions continued to perform strongly and generally in line with previous guidance, Bradken said.
But the company hinted at other concerns saying, “The businesses remain capacity constrained in some areas, with ramp-ups ongoing and order books at record levels”.
And building products group Boral has at last put analysts out of their misery with a profit downgrade that has been expected for the past month.
Boral cut its full year profit guidance by $22 million due to the impact of heavy rain and weak housing activity in its operations, it said in a statement on Friday.
Boral had forecast net profit before significant items in a range of $150 million to $175 million for the year to June 30.
But Boral said that first quarter profit fell $22 million below the company’s expectations, and its full year guidance had been cut by the same amount.
The downgraded forecast is now for a net profit before significant items of $128 million to $153 million.
“This reduction relates to continued heavy rain and lower residential housing activity on the east coast of Australia, particularly in Queensland and New South Wales,” the company said in a statement.
Boral’s US and Asian results were broadly in line with expectations in the first quarter of calendar 2012, the company said.
“Weather and market conditions continue to be key variables in the run-up to the year end and a further update will be provided as the year develops,” Boral said.
The company reported a net profit before significant items of $67 million in the first half of the 201-12 financial year, 28% down from the previous corresponding period.
Delivering that result in February, chief executive Mark Selway said the company’s second half result would only improve if heavy rain subsided.
It clearly hasn’t.
The shares fell 11c to $3.70.
Boral and Bradken join the likes of GWA and Stockland in downgrading 2012 earnings after the interim earnings season in February.
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