Source: The Australian

Story By: Blair Speedy

SHARES in Wesfarmers slumped to a 12-month low yesterday after the company revealed that its arch rival Woolworths was starting to close in on its Coles supermarkets division, while sales had stalled at its Target and Kmart chains.

Coles reported food and liquor sales of $6.18 billion for the June quarter, up 5.3 per cent, or 5.2 per cent when the benefit of new store openings was excluded.

This was slightly below market expectations for comparable sales growth of up to 6 per cent, but still above the 4 per cent gain in comparable store sales recorded by Woolworths over the same period -- Coles's ninth straight quarter of outperformance on comparable store sales growth.

Wesfarmers managing director Richard Goyder resisted the temptation to gloat over his company's continued outperformance against its larger rival, whose $36.1bn sales figure for annual food and liquor is 44 per cent higher than that of Coles.

"This is very much Coles versus Coles . . . we're pleased we're on track, but we've got a lot more to do," he said.

However, analysts noted the degree of outperformance by Coles had narrowed to just 1.2 percentage points in the most recent quarter, compared to the 4.2 point lead it enjoyed in the first quarter last financial year.

"We expect there to be ongoing narrowing in sales outperformance at Coles relative to Woolworths and this is likely to drive some narrowing in profit growth projections for the two businesses as well," Credit Suisse analyst Grant Saligari said.

Shares in Wesfarmers closed 72c lower at $29.37 yesterday, after earlier hitting a 12-month low of $28.85.

But Mr Goyder said Coles's annual sales revenue of $25.03bn, a gain of 6.5 per cent on a same-store basis, was the highlight performance of the retail businesses.

"This marks the twelfth straight quarter of comparable store sales growth at Coles and the ninth quarter of market outperformance, reflecting a continued positive response to improvement (in) value quality and service," he said.

"The ongoing policy trend of comparable sales growth is encouraging and follows an increase in the number of supermarket transactions and a bigger basket spend performance."

Mr Goyder said Coles had continued to cut shelf prices, with internal deflation of 1.6 per cent excluding tobacco as the shelf price of more than 6100 products was cut, and believed Coles was now leading Woolies on price.

"We have had a really strong strategy of trying to get price trust from our customers by delivering much better value," he said.

"In Coles, we think we're now leading on price, and that's resonating with customers."

Coles said this week that it would continue selling house brand milk at a discounted price of $2 for 2 litres, a price it promised to maintain for six months when first introduced in January.

However, Mr Goyder yesterday conceded the company had not extended the price guarantee for any definite period and the milk price could move up again.

To read the full story, follow this link: www.theaustralian.com.au/business/companies/coles-outperforms-arch-rival-woolies-but-target-and-kmart-sales-stall/story-fn91v9q3-1226103803573