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Coles’ sales could fall short of Woolies, say analysts

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Coles third quarter sales could fall short of arch rival Woolworths as shelf prices continue to fall, amid heavy discounting and food deflation, analysts say.

Wesfarmers, the owner of Coles supermarkets, Bunnings hardware, Kmart and Target stores, will release its third quarter sales results on Tuesday morning.

Woolworths last week booked a 3.8 per cent increase in sales for the 13 weeks to April 1 to $14.07 billion, compared to the previous corresponding period.

It said higher volumes were offset by lower prices.

Despite the weak Woolworths result, Commonwealth Bank of Australia (CBA) is sticking to its original forecast of a 3.5 per cent increase in comparable third quarter sales for Coles.

CBA analyst Andrew McLennan said Coles could post a 2.5 to 3.0 per cent increase in comparable sales growth in line with weak comparable growth at Woolworths.

“We wouldn’t necessarily extrapolate the same kind of weakness for Coles but it’s pretty clear that the deflationary process is pretty crook at the moment,” Mr McLennan said.

“I wouldn’t be surprised if we actually get a result from Coles with a two in the front of it.”

CBA is also forecasting 3 per cent sales growth for the quarter in the home improvement category, which includes Bunnings, a two per cent fall for Target and a one per cent fall for Kmart during the same period.

Mr McLennan said the Bunnings’ result would remain positive but it was still “pretty weak” in an historical context.

There was a risk that poor weather in eastern Australia could negatively affect third quarter sales figures for Bunnings, he said.

At the release of its first half results in February, Wesfarmers released a flat first half net profit result of $1.176 billion which was around expectations.

In the short term Wesfarmers expects challenging trading conditions to continue given subdued consumer confidence and high levels of price deflation, particularly with fresh produce in supermarkets.

Prices for fresh produce were almost 20 per cent lower at Woolworths supermarkets in the first three months of this calendar year compared to the same period in 2011.

Wesfarmers does not provide earnings guidance.

Wesfarmers shares closed 13 cents lower at $29.34.