Supermarket giant Woolworths Limited (ASX: WOW) is making up lost ground against arch rival Wesfarmers Ltd (ASX: WES) today but the share price performance gap between the two is stuck around the widest level in at least five years.
Woolworths is up 1.4% to a more than one-month high of $29.65 in late morning trade, while the owner of the Coles supermarket chain slipped 0.1% in to the red at $43.12 ahead of its quarterly sales update tomorrow.
The update could see shares in Wesfarmers give up more ground against Woolies as there is a risk that the former could turn in weaker-than-expected growth.
Wesfarmers has rallied 41.5% over the past five years, which is around 27% ahead of Woolies. The gap really only started to open in late February this year after Woolies delivered a disappointing half-year result that showed it was losing the supermarket war.
While that issue remains a drag on Woolies, perhaps it's time for some "mean revision" that will see the share price performance gap between the two narrow towards the average.
As I mentioned, Wesfarmers' sales update for the three months to March could prove to be the trigger given that Credit Suisse has downgraded its forecast for the group a day before the update is released.
Supermarket industry year-on-year growth for the first two months of the calendar year was 3% and 4.4%, respectively, according to the Australian Bureau of Statistics; while food inflation excluding alcohol and tobacco was 1.9% in the March quarter, compared with 2% in the previous quarter.
Credit Suisse believes this means volume has grown at a slower pace than in the December quarter and it has cut its like-for-like (LFL) sales growth forecast for Coles to 3.1% from 4%. LFL refers to sales growth at stores that have been operating for at least a year.
But you won't find consensus among analysts. JPMorgan is expecting Coles LFL growth to accelerate 0.3% to 4.3% in the March quarter over the previous quarter, and is predicting Coles to pull further ahead of Woolworths.
It will be interesting to see who is right but the divergent view means shareholders should brace themselves for volatility.
If you are looking for more stable returns, sign up below to see what the experts at Motley Fool have uncovered.
