Woolworths keen to shake image

Cameron BartramCountryman
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Woolworths has long been viewed as the perennial defensive stock on the Australian stock exchange, but with developments over the past 12 months, it is obvious the retailer is working hard to shake this tag.

The announcement of a new chief executive in internal candidate Grant O’Brien, expansion into the hardware sector with United States partner Lowes and an aggressive price-war with rival retailer Coles are all signs of a more aggressive approach from within Woolworths.

On Monday, Woolworths announced its third quarter sales results (January–March 2011). Sales have risen 5.1 per cent from 12 months ago, with the historically strong Easter sales period still to come.

In a highly competitive and challenging retail environment, Woolworths was pleased to report it had increased market share, customer numbers, basket size and items sold in the quarter.

Food and liquor continue to be the largest revenue driver for Woolworths, however, there was a notable underperformance from the New Zealand division of the business compared to the Australian arm.

In my opinion, two key statements came from the Woolworths results.

Firstly, Woolworths affirmed its full-year earning guidance, expecting net profit growth of 5–8 per cent after tax.

This was a positive sign for the market and, in line with the ‘no surprises’ theme, saw Woolworths close up 0.7 per cent on Monday.

The second statement was the subdued outlook presented by chief executive Michael Luscombe.

“The market continues to remain competitive with a less confident consumer who is spending less while having a greater propensity to save,” he said.

“This, combined with uncertainty around the level of inflation, the risks of future interest rate rises and a continuing strong dollar, provided a platform for a potentially subdued trading environment, particularly in the discretionary sectors.”

This cautious outlook summed up the feelings of the global market as the world continues to push through unprecedented economic times following the global financial crisis.

Recently, China came under inflationary pressure and consequently raised interest rates, with India appearing to be the next in line.

The US is coming to the end of its second stimulus package (QE2) and the US dollar has been devalued as a result of the ‘print our way out of trouble’ policy.

In Europe, three countries — Greece, Ireland and Portugal — have had to dip into the International Monetary Fund rescue fund.

On the local front, the economy appears to be handling the pressures at this stage.

However, there are warning signs that a subdued housing market and a high Australian dollar will restrict exporters, primary producers and any company generating revenue off-shore.

A two-speed economy is definitely in play, and at this stage Australia is fortunate to be propped up by the mining industry.

For more information, contact Cameron Bartram at Sentinel Stockbroking on 9225 0028 or email cbartram@sentinelgroup.com.au

''Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.


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