Australia's Woolworths Q1 sales defy gloom

By Victoria Thieberger

MELBOURNE (Reuters) - First quarter sales at Woolworths Ltd (WOW.AX), Australia's largest supermarket chain, rose 9.6 percent as revenue from grocery held up, bucking slower consumer spending, and the company forecast good Christmas retail sales.

Woolworths continued to snatch market share from rival Coles, owned by Wesfarmers (WES.AX), where first-quarter sales rose just 2.6 percent as its new owners set about a five-year overhaul.

"That share seems to be coming from Coles, while Wesfarmers try and re-orient Coles' strategy," said Martin Duncan, analyst at Fortis Investment Partners.

"Food and liquor is going to hold up reasonably well in the current environment, although it just shows that if you don't get it right, you get into a mess like Coles has," he added.

Consumer spending in Australia has slowed sharply, but economists say there are signs confidence lifting after the central bank slashed official interest rates by 1 percentage point this month in response to the global financial crisis.

Woolworths' sales growth improved from 7.5 percent reported in the fourth quarter, boosted by store refurbishments that have expanded higher-margin fruit and vegetable sales.

Total sales for the 14 weeks to Oct. 5 rose to A$12.8 billion ($9.0 billion) from A$11.7 billion a year earlier.

Woolworths Chief Executive Michael Luscombe told Reuters he expects good sales for the critical Christmas period, helped by interest rate cuts and a government stimulus package.