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Wesfarmers: Coles beats Woolies again

What: Wesfarmers Limited (ASX: WES) released its third quarter retail sales results (for the 2012 financial year) today, with the Coles division reporting its fifteenth consecutive quarter of comparable store sales growth, and a 4.9 per cent jump in sales to $7.84b, compared to $7.48b in the previous year.

Like Woolworths Limited (ASX: WOW), most divisions reported growth, although Target went backwards with sales falling by 4.4 per cent to $692m, compared to the previous corresponding period. Target’s sales are particularly being hit in the entertainment categories (computer & console games, DVDs, CDs etc.).

Kmart recorded growth in sales of 1.4 per cent to $813m for the quarter, the same growth as Woolworths’ Big W division.

Home Improvement is still way ahead of Woolworths with sales for the quarter of $1,669m, compared to Woolworths’ home improvement offering of just $211m.

Like-for-like sales in Coles stores grew by 2.7 per cent in the third quarter (which excludes new store openings and store closures), which was a better result than Woolworths, which only managed flat growth.

Coles reported that record price deflation of approximately 25% for fresh produce is having a major impact on growth. Food and Liquor price deflation in the quarter was 3.6 per cent, compared to 4.4 per cent for Woolies.

Coles has recently opened a new war in the ‘loyalty card’ front, sending cards to households around Australia and offering a 10% discount on consumers’ 5 favourite items.

Third-force Metcash Limited (ASX: MTS) is likely bearing the brunt of the competition – with consumers winning all-round

So what: This result shows that Coles had previously fallen a long way behind Woolworths in food and liquor. Coles is making up for lost time, but is still some way behind. As an example, Coles’ Food and Liquor division reported sales of $6.1b for the quarter. Woolworths Food and Liquor had sales of $9.4b for the same period, 50 per cent more than Coles.

This result also shows that price deflation is hurting both companies, but that Coles has improved its business markedly, is attracting new customers, and more than likely stealing customers from The Fresh Food People.

Now what:  With Coles reporting yet another quarter of sales growth in food, liquor and petrol, along with Kmart, Home Improvement and Office Supplies, Wesfarmers has a strong line-up of brands – and they are taking market share. The issue for Wesfarmers is what to do about Target.

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Motley Fool contributor Mike King owns shares in Woolworths. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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