Wednesday 28th July 2010 |
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Woolworths, which owns the Countdown, Foodtown and Woolworths supermarkets and Dick Smith chain in New Zealand, has reported a reasonable performance in a challenging environment but the market is likely to be slightly disappointed, says Peter Warnes, an analyst at Aegis Equities Research.
Woolworths' sales rose 4.2% in the year ended June 27. Real Australian food and liquor sales growth was 2.6% for the year and 1.8% for the June quarter, excluding increase tobacco excise tax while the total trading area of Australian supermarkets increased 4.4% with 26 new supermarkets opened.
"New Zealand supermarkets surprised, reflecting the benefits of the integration process and the transition to one brand, despite challenging economic conditions," Warnes says.
"The magnitude of the deterioration at Big W in the fourth quarter surprised with a 9.3% fall in headline sales and a 10.2% in comparable sales," he says.
The consumer electronics division performed better with annual comparable sales up 1.6%, driven by an 8.5% lift for the Dick Smith stores.
Woolworths has an enviable track record, achieving compound annual growth in earnings per share exceeding 15% over the last 15 years, Warnes says.
"While it operates in the very competitive supermarket and discount department store segments of the retail sector, it has been able to gradually widen trading or EBIT (earnings before interest and tax) margin, lift profitability, generate substantial fee cash flow, improve key financial ratios, reward shareholders and create significant shareholder wealth."
Recommendation: Accumulate
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