Woolworths posts 2.3% rise in Q1 sales

Australian supermarket operator Woolworths Ltd reported a 2.3 percent rise in first-quarter same-store food and liquor sales on Thursday, beating analysts' expectations despite a tight spending environment.

Australian retailers are facing tough conditions as frugal consumers spend less and save more and as fierce competition cuts grocery prices.

Woolworths Chief Executive Grant O'Brien said the core businesses increased market share, customer numbers and items sold compared with a year earlier.

The rise in core sales growth beat forecasts for a 1.6 percent rise, according to a Reuters survey of five analysts.

Overall I think the market should be reasonably comfortable with (the result), said Peter Warnes, head of equities research at Morningstar.

However, he said Woolworths had fallen behind rival Coles, owned by Wesfarmers Ltd, and was lagging in terms of store growth, despite opening several new stores.

Woolworths and Coles –which together control 80 percent of Australia's grocery sector – have slashed the cost of basic items such as milk, bread and vegetables to lure shoppers.

O'Brien said price deflation had continued across the wider group, but a return to inflation in fruit and vegetables had assisted the first-quarter result.

The retailer said it had also made strides against internet competition, reporting a 30 percent rise in online sales for the quarter. Woolworths has moved in recent months to focus on its core retail business, selling off its struggling Dick Smith electronics unit and announcing plans to spin off its property holdings. It also operates brands including discount retailer Big W, liquor chain Dan Murphy's and Masters Home Improvement. Woolworths shares were up 0.2 percent at A$29.23 at 0107 GMT, lagging a 1 percent rise in the broader market.

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