Woolworths And Wesfarmers Could Struggle To Maintain FY2010/11 Performance

Australian leading mass grocery retail (MGR) operators Woolworths and Wesfarmers have both recorded strong sales performances for the fiscal year ending June 2011 (see table). In our opinion, the retailers' strong revenue growth can be attributed to the positive impact of price cuts on staple grocery items such as milk and bread, which supported volume growth, as well as the underlying healthy domestic demand conditions over the past 12 months. However, with the strength of consumer demand expected to falter over the coming quarters, we maintain our view that retailers are likely to face challenges in sustaining their FY2010/11 financial performance in FY2011/12.

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