The Woolworths Group Ltd (ASX: WOW) share price could be on the rise on Thursday after the conglomerate followed the lead of Coles Group Ltd (ASX: COL) by releasing a solid third quarter sales update of its own.
In the third quarter of FY 2019 the company posted total sales from continuing operations of $14,898 million. This was a 4.2% increase on the prior corresponding period, or 5.1% when adjusting for Easter.
What were the drivers of this growth?
The key Australian Food segment performed well during the quarter, posting sales of $10,017 million. This was a 4.1% increase on the prior corresponding period or 4.7% when adjusted for Easter. On a comparable store basis, sales grew 3.6% or 4.2% after adjusting for the timing of Easter. This was driven by lower deflation and more settled weather.
The Endeavour Drinks segment posted sales of $10,017 million, up 3.7% on the prior corresponding period and 3% on a comparable store basis. Easter-adjusted sales rose 6.4% or 5.9% on a comparable store basis. This was driven by positive comparable growth from BWS and Dan Murphy's, assisted by the timing of New Year's Eve and favourable weather.
The New Zealand Food segment achieved sales of A$1,616 million, up 6.5% on the prior corresponding period. Comparable store sales grew 4.1% or 3.8% when adjusted for Easter. Management advised that its online growth was a key highlight during the quarter.
The BIG W business posted a 2.6% increase in sales to $791 million. On a comparable store basis, BIG W's sales grew 4.4% or 7.4% after adjusting for Easter. Strong performances from its Everyday, Leisure and Home lines drove the solid growth.
Finally, the Hotels segment posted a 3.2% lift in sales to $402 million. Comparable sales rose 3.2% or 2.7% on an adjusted basis. This was driven by growth from its Bars and Food.
Was this a strong result?
According to a note out of Goldman Sachs, its analysts were expecting comparable store sales growth of 3% for the food segment, 1% for the Endeavour Drinks segment, 3.2% for its New Zealand supermarkets, and 3.7% for Big W.
As you can see above, Woolworths has smashed the broker's third quarter forecasts.
Woolworths Group CEO, Brad Banducci, was rightfully pleased with the quarter.
He said: "We are pleased with the improvement in sales momentum across the Group in Q3 with Australian Food comparable sales growth of 4.2% (Easter-adjusted) a particular highlight, after a challenging first half. While we had positive transaction and item growth, sales also benefitted from lower deflation than recent periods and settled weather. Customer scores remained high but were marginally lower than the prior year with plans in place to address areas of underperformance. Our 'Simpler for Stores' productivity program continues to build momentum and there are a number of initiatives underway to address higher than forecast stockloss."
Should you invest?
Whilst I would still choose Coles and Wesfarmers Ltd (ASX: WES) ahead of Woolworths for valuation reasons, I was impressed with Woolworths' performance in the third quarter.
If it can maintain this form in the fourth quarter and through to FY 2020, then it could prove to be a good investment despite the premium its shares trade at.
