Better product offering boosts Woolies

This is the view of analysts after Woolworths said it expects to report a rise of between 45% and 55% in headline earnings per share for the year to end-June. The group, which offers mainly food and clothing to higher-end consumers, said for the 52-week trading period to June 27 sales rose by 10.5%, with comparable store sales 5.7% up from last year.

Sales growth in the clothing and general merchandise division was 11.2% up, with comparable stores sales 6.7% higher. The food division reported a 9.9% sales growth, with comparable store sales surging by 5.6%.

However, Australian business Country Road was weaker than expected, reporting sales growth of 8.5%, with comparable store sales of 1.5% as consumer spending remains tight in that country.

Woolworths said its earnings during the year were positively impacted by the growth in clothing and general merchandise margins, as well as a lower effective tax rate which will not be repeated next year.

"Woolworths' strategy to improve the customers' value perception and offer more innovative and segmented merchandise is paying off," said Avior Research retail analyst Simone Kruger. "Like-for-like clothing and general merchandise sales growth of 6.7% for the year exceeds Truworths' 4.0% same store growth for the similar period."

Kruger also noted that like-for-like growth of 5.6% in Woolworths' food business was higher than the 4.8% recently reported by Shoprite Holdings [JSE:SHP] over the same period.

She said Woolies' food market share has steadily increased over the past few years, growing from 7.0% in 2003 to 10.5% in February 2010. "We believe Woolies can reach 13% market share within three to four years due to their new larger food offering and current trends towards convenience shopping," Kruger said.

In Australia, Country Road is expected to report a fall in profit for the year.

Makwe Masilela, an analyst at stockbroker BP Bernstein, said Australia is one of the first G20 countries to start tightening up its monetary policy, which had a negative dent on retail sales.

Trading in Australia is also affected by the 160 basis-point interest rate increase since June 2009, and the fact that the government did not repeat the previous year's fiscal stimulus package, added Kruger.