Woolworths shares rose in morning trade, adding as much as 2.1 per cent, or 52 cents, to $24.97. Shares of Wesfarmers, owner of Coles, gained 0.6 per cent, or 19 cents, to $30.36. "The investment and management attention given to Dick Smith have been disproportionate relative to its position within the Woolworths Group," said Woolworths chief executive Grant O'Brien, stating the company's intent to focus on growing the core supermarket business. "We believe that separating this speciality business model from Woolworths is now the best option for the future of both businesses," he said. Woolworths said it would take a restructuring charge of $300 million in the first half of its current business year as part of the Dick Smith overhaul. Some analysts, though, say the sale of Dick Smith may not be an easy one.

‘‘We struggle to identify any logical buyers for Dick Smith - the chain will lose the renowned WOW supply chain if sold which will reduce margins,’’ Macquarie Group analysts said in a note. A string of retailers from Kathmandu to JB Hi-Fi have had to cut their profit targets for this business year as consumers hold back on spending or buy more for online rather than from so-called "bricks and mortar" outlets. The prospect of takeovers in the retail sector, though, has buoyed retailers' shares today. JB Hi-Fi, which may benefit the most by a smaller - or non-existent - Dick Smith rival, jumped as much as 6.1 per cent, or 72 cents, to $12.54. Harvey Norman and David Jones shares rose by about 4 per cent.

Weak sales growth News of the Dick Smith sales plans came as Woolworths today reported weaker-than-expected sales in its core grocery business. The poor result coincided with Coles declaring fruit and vegetables would become the latest battleground of the supermarket price war with selected products to be discounted by as much as 50 per cent.

Comparable food and liquor sales for Woolworths in the December quarter increased just 1.1 per cent with overall sales up 4.1 per cent to $9.87 billion. Woolworths blamed an unseasonally cool summer and price deflation in produce, seafood, bakery and deli opertions for the slow sales growth. "Produce deflation was experienced in all months of the quarter and by December was double digit," Woolworth's said today in its half-year sales report. The company said the impact of the cooler weather "was greatest in lines such as soft drinks, ice-cream and deli items including salads, cold meats and roast chickens". The head of Woolworths supermarkets and petrol business Tjeerd Jegen said the company continued to gain market share despite the subdued result. Goldman Sachs had forecast that Woolworths would report comparable store sales growth in the food and liquor division of 1.8 per cent with overall sales up 4.7 per cent.

Coles is expected to report comparable store sales growth in the food and liquor division of 5.5 per cent on Thursday, according to Goldman Sachs. The new discounting battle began today. Woolworths has said net profit growth would be limited to between 2 and 6 per cent this year.



Commonwealth Bank's equities team yesterday cited the narrow profit range and weak spending because of unseasonally cool weather and produce deflation as possible prompts for a downgrading of its recommendation for Woolworths shares. New Masters Mr O'Brien said sales in Woolworths' home improvement division increased 16.4 per cent for the half year following the opening of seven Masters stores. The company said it planned to open another 14 supermarkets and six Dan Murphy's liquor stores in the 2012 financial year.

The consumer electronics division grew by 2 per cent over the half year to $1.04 billion over the same period a year earlier. However, general merchandise division sales fell 0.3 per cent to $3.4 billion and Big W sales fell 1.3 per cent to $2.4 billion. Woolworths opened 25 Australian supermarkets during the half year, bringing the total to 864. It also opened 14 Dan Murphy's liquor stores during the half, taking the total to 154. Loading Woolworths appointed Greenhill Caliburn to advise on the sale of Dick Smith.

ckruger@smh.com.au, with Reuters, AAP

