Daily ShareChat: Woolworths

By Jenny Ruth

Wednesday 4th May 2011

Woolworths increased market share, customer numbers, basket size and items sold in its third quarter, despite intense competition and widespread challenges for the consumer dollar, says Peter Warnes, an analyst at Aegis Equities Research, which is owned by Morningstar.

The Australia-based Woolworths, which owns 158 Countdown, Woolworths and Foodtown stores in New Zealand as well as the Dick Smiths chain, lifted sales 5.1% in its third quarter, at the higher end of analysts' expectations.

"The performance is mildly positive with the retail environment remaining intensely competitive and sales revenue buffeted by widespread deflationary pressures," Warnes says.

"Significant inflation was evident in fresh produce following weather-related natural disasters and subsequent major disruptions to supply," he says.

The New Zealand supermarkets performed relatively well in a challenging economic environment with sales growth bettering overall market growth, reflecting gains from the transition to the Countdown banner and acceptance of the new format stores, he says.

Woolworths is a defensive growth stock with a solid balance sheet and its shares deserve to trade at a premium, Warnes says.

With the company affirming previous guidance, Warnes made no changes to his forecasts. Net profit is expected to grow between 5% and 8%. Warnes is forecasting Woolworths will report a A$2.165 billion (NZ$2.93 billion) net profit for the year ending June 30, up 7.1% on the previous year.

Recommendation: Accumulate.

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