Here's why Wesfarmers Ltd is a better bet than Woolworths Limited

Wesfarmers Ltd (ASX:WES) and Woolworths Limited (ASX:WOW) are both considered blue-chip stocks, but is only one of them right for your portfolio?

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Earlier this week Australia's largest conglomerate, Wesfarmers Ltd (ASX: WES), released its third quarter retail sales results for its retail businesses which include Coles, Kmart and Bunnings.

Wesfarmers also released its quarterly statement of production, development and exploration along with its price negotiations, both of which relate to its coal operations.

While the coal division will continue to struggle in the face of a weak coal price, Wesfarmers' retailing division once again was a highlight.

Here are some key figures from the third quarter retail results:

  • Coles Food and Liquor division increased sales by 5.4% to $7.1 billion; the Coles Convenience division showed a decrease on account of lower petrol prices.
  • Bunnings grew sales a massive 12% to $2.3 billion.
  • Officeworks expanded sales an impressive 9% to $485 million.
  • Kmart put in another strong performance with sales expanding 10.9% to $937 million.
  • Target's poor performance continued with limited signs of any levelling out with sales down 1.6% to $663 million.

As is often the case in the business world, a rising market position for one player can mean a declining position for another.

Listed retail peer Woolworths Limited (ASX: WOW) operates a world class supermarket business, however, arguably its business operations are currently 'as good as it gets'. From this point forward it's possible that Woolworths will experience declining profit margins as it battles the onslaught of a rejuvenated Coles and eager foreign competitors such as Aldi and Costco.

Likewise, despite the best intentions of Woolworths' board and management to carve out a significant slice of the home improvement market for itself through the Masters and Danks businesses, it is up against a formidable competitor in Bunnings. Ultimately, I believe Woolworths will establish a creditable brand to compete with Bunnings, however, the question remains 'at what cost'?

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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