Woolies wows investors

But price deflation and intense competition are still issues

a woman

Growth becomes harder to garner for the big retailer, Woolworths Limited (ASX: WOW). Total group sales were up 4.7% to $56.7 billion, beating analyst expectations, thanks to increasing sales in all divisions. Chief executive Grant O’Brien said the overall result was underpinned by growth in customer numbers, market share and units sold.

The supermarkets division, which dominates the business, brought in $48.6 billion in sales a 4.9% rise over the previous year. The main drives were the opening of 38 new supermarkets, 20 Dan Murphy’s stores and achieving higher prices for petrol. Litres of petrol sold rose by 1.7%, but petrol revenues jumped 11.4%.

The Home Improvement division reported a 24.7% increase in sales, which suggests Woolworths Masters stores could be eating into the market share of Bunnings – owned by Wesfarmers Limited (ASX: WES), and Mitre 10 – now owned by Metcash Limited (ASX: MTS) . Five new Masters stores were opened in the last quarter, bringing the total to 15 stores.

Consumer Electronics – aka Dick Smith Electronics, increased sales by 2.1% for the year, as the company clears stock and closes underperforming stores. Sales in the fourth quarter jumped by 10.4% as 27 stores were closed and stock cleared. For the year, 46 Dick Smith stores have been closed, as Woolworths looks to restructure the division and sell off the remainder of stores.

The Hotels division showed a 4.4% increase as the Federal Government’s various handouts appeared to flow into accommodation, alcohol and meals sold through its hotels, as well as the thousands of poker machines the company operates.

The bad news is that price deflation remains a major issue with average prices falling 4.4% in the second half of the year, while comparable store sales increased by just 1.1% over the previous year. The intense price war with Coles (also owned by Wesfarmers) doesn’t appear to have an end in sight. When combined with the tough economic conditions and the unseasonably cold and wet summer period, any positive growth should be viewed in that light.

The market liked the news with Woolies shares up around 1% compared to the S&P / ASX 200 Index (Index: ^AXJO) (ASX: XJO) being down more than 1.7%. In the past three months, Woolworths shares have risen 8.2%, compared to the index’s fall of 5%, as the company continues to attract investors likely prompted by the company’s defensive qualities.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’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). Authorised by Bruce Jackson.

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