As I suggested here yesterday after Wesfarmers Ltd (ASX: WES) released its third quarter retail sales results, Woolworths Limited (ASX: WOW) has today thrown down the gauntlet, reporting growth of 4.4% (5.1% Easter adjusted) in sales at its Australian Food and Liquor operations. In comparison the Coles' Food and Liquor division reported sales growth yesterday of 3.9%.
On a same store basis the Australian Food and Liquor division reported sales growth of 2.9% (or 3.5% Easter adjusted), in comparison Coles achieved 3.5% growth (adjusted for both New Year's Eve and Easter); placing both supermarket chains practically neck-and-neck.
The other important result to note from Woolworths' sales update was the 40.9% growth in sales from home improvement brand Masters which was boosted by the opening of seven new stores during the quarter; there are now 45 Masters stores in operation.
Meanwhile, Woolworths' General Merchandise division which houses the Big W chain reported a fall in sales of 3.8% (down 1.1% Easter adjusted). This result was in line with the experience of Wesfarmers' Target business which recorded a fall of 3.6%, however it was behind the 0.4% gain achieved in the Kmart business.
Commenting on the stellar results, Woolworths' CEO Grant O'Brien stated that ongoing momentum was evident in Food, Liquor and Petrol and that market share growth was a factor in this growth. This gain in market share would appear to reflect positively on management's ongoing drive to implement its four strategic priorities to transform Woolworths for the future.
Foolish takeaway
The struggles facing Metcash Limited (ASX: MTS) and the impressive growth rates being achieved at both Coles and Woolworths remind investors of the difficulties a smaller player which fails to carve out a profitable niche can have competing against much larger competitors.
Although investors are selling down Woolworths post announcement – most likely due to the growth rate falling short of analysts' expectations – with the shares off nearly 3% by mid-morning, Woolworths' share price is still near its all-time high and looks fully priced. The continued success of Woolworths' growth strategy is definitely appealing, however, it would appear prudent for investors to wait for lower prices before buying into this high quality, market-leading retailer.
