Retailer may sell department stores to fight off Woolworths

SYDNEY - Coles Myer, Australia's biggest retailer, may sell its 105-year-old Myer department store chain as it focuses on stopping market-share gains by Woolworths in groceries and liquor.

Chief executive John Fletcher said yesterday Coles Myer was considering the possible sale or spinoff of Myer and would sell the nine-store discount Megamart chain.

The group's food and liquor sales in the latest quarter grew three times faster than revenue from Myer.

Fletcher is widening the range of fresh food at its Coles supermarkets and opening larger liquor outlets to win back sales from Woolworths in the country's A$70 billion-a year ($76 billion) grocery and drinks market.

Investors including Saxon Nicholls said they would prefer the company to retain Myer, which has sold unprofitable stores and replaced managers.

"If anyone should be able to make money from Myer, it's the current management, and for shareholders that's a better option than handing all the value to private equity or a competitor," said Nicholls at Herschel Asset Management.

Shares of Melbourne-based Coles Myer fell 10Ac to A$9.75. The stock has returned 18 per cent to shareholders, including dividends, in the past 12 months, less than half the amount at Woolworths.

Coles Myer yesterday reported sales for its most recent quarter that lagged behind growth at Woolworths.

Its sales rose 11 per cent to A$9.5 billion in the 13 weeks to July 31, the retailer said.

Larger grocery rival Sydney-based Woolworths last month said third-quarter sales rose about 14 per cent, after its A$1.3 billion takeover of liquor retailer Australian Leisure & Hospitality Group.

Sales from food and liquor, which represents two-thirds of the company's total, rose 11 per cent and revenue from petrol stations and convenience stores surged 19 per cent. Myer sales rose just 3.1 per cent.

Myer is heading for a second-half pretax loss of A$16 million, based on the company's full-year forecast, on fewer sales of appliances and clothing.

Myer has 61 stores across Australia.

- BLOOMBERG