July 22 (Bloomberg) -- Woolworths Ltd., Australia’s biggest retailer, said fourth-quarter sales rose 5.4 percent on accelerating growth at its domestic supermarkets.

Sales rose to A$11.1 billion ($9 billion) in the three months ended June 28, Sydney-based Woolworths said in a statement today. Revenue from Australian supermarkets open at least a year rose 7.9 percent in the quarter, beating the 7.4 percent median estimate of three analysts Bloomberg News surveyed by telephone and e-mail.

Chief Executive Office Michael Luscombe’s A$2 billion spending program to refurbish stores and open new outlets, combined with an expanded loyalty program, is winning grocery sales from the Coles unit of second-ranked Wesfarmers Ltd. The market-share gains come as more than A$20 billion in government stimulus through cash handouts stoke consumer demand.

“Woolworths continues to grow Australian food and liquor revenues at significantly above inflation rates,” said Rhett Kessler, who helps managed $1 billion at Pengana Capital Ltd. in Melbourne. It will be “interesting to see if Coles can keep up,” he added.

The retailer’s shares slipped 12 cents to A$27.58 at the 4:10 p.m. market close in Sydney, trimming its rally in the past month.

Costco Enters Australia

“Woolworths posted good numbers, but they weren’t good enough to justify the 8.6 percent rise since June 25,” said Ben Potter, an analyst at IG Markets in Melbourne. The stock gained 8.6 percent from June 25 to yesterday.

Woolworths is winning sales from Australian rivals as Costco Wholesale Corp., the largest U.S. warehouse club chain, prepares to open its first store in the country on Aug. 17 with a 14,000 square meter (151,000 square foot) outlet in Melbourne.

Costco, which will charge as much A$60 in annual membership fees to Australian customers, plans to use its lower profit margins to cut prices on bulk groceries with stores that are almost three times as large as most Coles and Woolworths outlets.

“They are really good retailers and they will do well,” Luscombe, 56, said in an interview. “We think we measure up pretty well against what Costco has to offer.”

Woolworths 12-month sales rose 7.5 percent to A$49.6 billion compared with the company’s forecast for annual growth in the “upper single digits.” Woolworths adjusted the sales result for an extra trading week in the year earlier and the timing of Easter.

Growth Forecast

Luscombe said there are “no concerns” about Woolworths achieving its annual profit forecast. In February, Woolworths said earnings would rise between 9 percent and 12 percent in the year ended June from the A$1.63 billion posted in 2008. Adjusted for an extra trading week in the year earlier, forecast growth will be between 11 percent and 14 percent.

Total revenue from Australian supermarkets rose 9.5 percent to A$7.5 billion in the fourth quarter. The same-store growth of 7.9 percent in the period compares to an increase of 4.9 percent in the year earlier.

The company’s “2010” store formats, which feature increased selling space for more profitable fresh fruit and vegetables, has been rolled out to more than 40 percent of the company’s 802 Australian supermarkets.

Woolworths has 3.6 million people on its Everyday Rewards loyalty program, or about one in six Australians, after teaming up with Qantas Airways Ltd. to add frequent flyer rewards.

Luscombe said company data has shown that shoppers who link the rewards program to Qantas spend more.

Fuel Discounts

“The strength in sales reflects the return on store refurbishments completed in recent years’ said Craig Woolford, an analyst at Citigroup Inc., who rates the stock “hold.” “Once again, the food & liquor Australia segment was impressive,” Woolford said in a note to clients today.

Fuel sales fell 18 percent in the quarter to A$1.2 billion on lower prices for gasoline. Woolworths attracts shoppers to its filling stations by offering a 4 cents-a-liter discount on fuel when they spend at least A$30 in its supermarkets.

Both Woolworths and Coles are expanding their fuel offers, giving customers discounts of as much as 40 cents a liter for grocery purchases of more than A$300.

New Zealand supermarket sales rose 1.6 percent to A$887 million in Australian dollar terms. In the New Zealand currency, the increase was 4.8 percent.

Revenue from Big W discount stores gained 13 percent to A$903 million and the consumer electronics unit increased sales 14 percent to A$382 million.

Reduced investment by mall owners in new properties is slowing the expansion of Big W, with Woolworths looking for its own “standalone” properties to located its discount department stores as well as supermarkets and liquor outlets.

Sales at the hotels unit, Australia’s biggest owner of pubs, rose 3.7 percent to A$251 million.

The Australian Woolworths isn’t related to collapsed London-based Woolworths Group Plc, which was founded in 1909 as part of its U.S. parent’s expansion, or Woolworths Holdings Ltd. based in Cape Town, South Africa.

To contact the reporters on this story: Robert Fenner in Melbourne rfenner@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net

Last Updated: July 22, 2009 02:59 EDT