Woolworths wins Christmas trading battle
Morgan Stanley analysts have declared Woolworths the winner of the Christmas trading period, out-trading Coles for the third year in a row.
They estimated Woolworths grew like-for-like sales 3 per cent while Coles’ like-for-like sales grew 2 per cent.
Meanwhile, the investment bank said that non-food retailers suffered a weak Christmas trading period, with foot traffic down significantly last month.
“Falling house prices, greater focus on Black Friday driving discounting and weaker equity markets all look to have held the Australian consumer back this Christmas,” the analysts said.
Morgan Stanley said that while lower foot traffic was partly due to consumers browsing online and then buying instore, the figure was still soft.
The bank’s latest retail sector comments come ahead of the release of NAB’s December cashless sales report, which is due to be released later this month.
November retail sales growth overall lifted 0.4 per cent, slightly higher than consensus but was down on the previous period when growth was 1.2 per cent.
“This could suggest less pull forward of demand from Christmas sales this year, or that overall sales growth over the last two months of the year was weaker,” the analysts said.
New vehicle sales in December also fell 14.9 per cent, the largest drop since the GFC.
Meanwhile, supermarket trade overall improved in December compared with previous months, Morgan Stanley said, driven by food inflation and healthy instock positions.
“Food prices are rising, which we think is partly driven by higher input costs linked with the drought, but also less supermarkets’ promotional activity,” the analysts said.
“Our channel checks with suppliers indicate that retailers lifted prices rationally alongside supplier price increases and didn’t add extra margin as has been the case in the past.”
Morgan Stanley called current supermarket trading conditions “benign”, saying that competition has progressively reduced over the past two years. That trend appeared to continue in December, they said.
Still, Morgan Stanley said margin outlook was likely to be constrained by digital investments. “While like-for-like sales trends appear robust and broadly in line with cost inflation, we think the prospects for significant margin expansion are limited given ongoing investments, especially in digital initiatives,” they said.
They predicted Coles would post a first-half earnings before interest and tax food margin of 4.02 per cent, down three basis points year-on-year, while Woolworths would book an earnings margin of 4.74 per cent, up seven basis points compared with last year.