UBS tips faster Woolworths turnaround

Woolworths-3Woolworths’ sales turnaround is likely to happen at a faster pace than the market expects, analysts at investment bank UBS say.

A UBS survey of 48 supermarket suppliers has found suppliers have greater confidence in Woolworths than in rival Coles.

“The results of our survey, coupled with industry feedback, suggest the Woolworths’ turnaround will continue and likely at a faster pace than what the market is expecting,” the report, headed by analyst Ben Gilbert said.

Gilbert said the survey increased questions around Coles’ owner Wesfarmers, which also owns hardware chain Bunnings.

“Results from Coles lead us to question if further risk exists to our forecasts, which coupled with growing headwinds to Bunnings, suggests near term share price risk,” he said.

The report said suppliers were more positive about Woolworths than Coles on several key measures including store presentation, pricing and promotional strategies.

It found this was partly because Woolworths was working with suppliers more effectively than Coles on issues including promotions and reducing range.

The analysts said it could also be partly because Coles is looking to cut product range more aggressively than Woolworths.

“Suppliers are now of the view that their relationship with Woolworths has moved ahead of that with Coles,” Gilbert said.

Coles’ limited response to Woolworths’ $1.5 billion plus investment in lowering food prices over more than 12 months has also hurt it, the UBS team said.

In the third quarter, Woolworths’ comparable food sales rose 4.5 per cent compared to Coles’ 0.8 per cent – a sign the former is winning over more customers and that its sales recovery is on track.

Coles has previously announced that it will spend more on staffing and store presentation to reverse its slowing sales growth.

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