Woolworths Falls Trailing Coles Sales Growth for 18 Quarters

Woolworths Ltd., owner of Australia’s largest grocery chain, fell after posting slower dividend growth and as a measure of supermarket sales fell behind rival Coles for the 18th consecutive quarter.

Net income rose 8.5 percent to A$2.45 billion ($2.3 billion) in the year ended June 29, the country’s second-largest retailer said today, matching the average of 11 analyst estimates compiled by Bloomberg. The final dividend rose 1.4 percent, the slowest pace since at least 2000, to 72 Australian cents

The slowing payout growth and underperformance relative to Wesfarmers Ltd.-owned Coles illustrates the challenge for Chief Executive Officer Grant O’Brien, who’s promised to return the company to the 10 percent annual earnings growth that it achieved for 11 consecutive years up to 2010. Losses at its Masters hardware chain and falling sales at Big W department stores risk detracting from a retail business that’s more profitable than Carrefour SA.

“I don’t think you’ll be seeing that for quite a few years,” Scott Marshall, an analyst at Shaw Stockbroking Ltd. in Sydney, said by phone after the results, referring to the management target for earnings growth. To reach that level, “you would have to make the assumption that either inflation is going to go through the roof, or Coles is going to stumble pretty badly.”

Woolworths fell 1.1 percent to A$36.56 at 11:47 a.m. in Sydney trading, while the benchmark S&P/ASX 200 index was little changed. The stock has risen 7.7 percent this year, compared with a 5.1 percent gain in the benchmark.

Coles Growth

Sales from the chain’s Australian food and liquor stores open at least 12 months increased 2.5 percent in the fourth quarter after adjusting for movements in the date of Easter, a busy time for supermarkets, Woolworths said in a statement.

Coles, the second-ranked Australian grocery chain, had 4.1 percent sales growth in the period, the 18th consecutive quarter of outperformance.

Excluding one-time items and adjusting for a shorter trading year, net income rose 6.1 percent, compared with a forecast of 5 percent to 7 percent growth the company made in March. Net profit will increase between 4 percent and 7 percent over the coming year and the company is reviewing its practice of forecasting the measure, Woolworths said in a statement.

“I don’t think customers are as confident as they can be at the moment, and I don’t think businesses are as confident,” O’Brien said on a media call after the announcement today. Trading conditions will “remain challenging” in the year ahead, the company said in a statement.

Dividend Growth

Woolworths’ half-yearly dividend will rise 1 cent per share from a year earlier, the company said. That’s the slowest pace of growth since at least the six months ended December 1999, according to data compiled by Bloomberg, and compares with an average rate of 12 percent over the past decade.

Investors look to dividend growth as an indicator of management’s continued confidence in their ability to increase earnings. Woolworths is still paying out about 70 percent of net income, excluding one-time items, the company said in a presentation.

The improvement in net income remains impressive, said Peter Esho, managing partner at Sydney-based wealth management firm 100 Doors.

“A business that can continue growing above inflation and at twice the rate of GDP in a tough year is a fantastic business,” he said by phone after the result. “It’s something I want to hold.”

Group Revenue

The retailer, which opened its first store in Sydney in 1924, tripled in market value over the past decade.

Group revenue rose 2.7 percent from a year earlier to A$61.19 billion in the 12 months ended in June, with earnings before interest and tax gaining 3.3 percent to A$3.78 billion.

Ebit at the food and liquor unit climbed 7.2 percent to A$3.37 billion over the 12 months after adjusting for the shorter year, while earnings from the merchandise business that includes the Big W discount department store slumped 19 percent to A$153 million. Woolworths’ hotels unit, Australia’s biggest operator of pubs, grew annual earnings 6.5 percent to A$275 million.

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