In one respect it was a clever bit of marketing by Woolworths yesterday to announce the restructuring and sale of its Dick Smith consumer electronics chain at the same time as it revealed weak sales figures, especially from its core Australian supermarkets and liquor business in the December quarter and half year.

The decision to sell Dick Smith came as no surprise, with plenty of well informed leaks in the past couple of months about the review of the chain and a likely outcome.

It was just the news the market wanted to see from Woolies and the shares rose accordingly, up 59c or more than 2% to a day's high of $25.14 in morning trading.

But as investors crunched the numbers and looked past the Dick Smith news, the shares came back and only managed a 33% gain to $24.78, a rise of 1% on the day.

The release of the Dick Smith news overshadowed the weak sales performance in the vital Christmas period and allowed Woolies and its management to play up the 5.6% growth in topline sales for supermarkets in Australia and New Zealand to $25.2 billion for the 27 weeks to January 1.

That enabled Woolies to underplay a very weak sales performance on a comparable (or same store) basis in Australia which in turn underlined the real problems at Woolies and its recent weak profit growth.

Topline sales for the quarter rose 4.3% to $19 billion, a rise of $800 million, in the Australian supermarkets and liquor businesses, with comparable store sales rising 1.5%.

That's better than the 3.5% rise in topline sales in the December half of 2010, but much weaker than the 2.2% improvement in comparable store sales.

In the key December quarter, which includes the Christmas period, comparable store sales in Australian food and liquor was up just 1.1%.

Comparable sales growth slowed from 1.9% in the September quarter, so it was a weak result and from the 2.5% for the December, 2010 quarter of 2010, which was seen as surprisingly weak when revealed a year ago.

But the heart of Woolies' profit and cash machine is actually slowing faster than that and analysts said that if liquor sales were stripped out of the comparison, then comparative sales growth for Australian food would be below 1% in the December 2011.

That's almost stalling speed for a retailer used to growth rates four to 8 times faster than that in recent years.

And while the supermarkets and liquor businesses did see price deflation in the half year, but it wasn't all that different to what was seen a year earlier, so it can't be blamed as a significant factor.

Woolies said the December half year saw "Average prices continued to experience deflation for the half year of 3.7% when the effects of promotions and volumes are included. That compares with price deflation of 3.8% for the December, 2010 half year.

"Average prices for the second quarter declined 4.1%. Part of this deflation resulted from Woolworths lowering its prices to meet increasing customer demand for value," Woolies said. That's one explanation: the real one was the fact that Coles' incessant price attacks forced Woolies to cut its prices to match those of its rivals.

That all makes the profit guidance (which wasn't altered yesterday) of a rise of 2% to 6% easier to understand.

And other parts of Woolies business did much better than the supermarkets business, especially in the December quarter.

In fact the performance across the Tasman in Woolies NZ supermarkets was much better than in Australia.

There was a 3% rise in topline sales for the half year and the second quarter and a 4.5% rise in comparable store sales in the half year and a 4.1% improvement in comparable store sales in the December half year.

All stronger (admittedly from a much smaller base) than that reported from the Australian business, but a stronger result nevertheless.

In the Big W division of Woolies, sales fell 1.3% to $2.4 billion with comparative store sales down 2.8% for the December half year.
That was an improvement on the December, 2010 half year when topline sales fell 2.8% and comparable store sales were off a huge 4.2% (4.5% fall in the December, 2010 quarter alone).

The Big W chain did better in the December quarter when topline sales fell 0.7%, against a 2.7% slump in the three months to September. Comparable store sales fell 1.7% in the December quarter far better than the 4.2% slump in the three months to September.

And the about to be broken up and sold off Dick Smith chain had a better sales result at the supermarkets.

Dick Smith grew topline sales 0.7% in the half year, against a 2.3% rise in the same period of 2010, while comparable store sales rose 2.4% against 4.1%.

But the December quarter saw a big improvement with a 3.1% rise in topline sales and a 4.8% jump in comparable store sales, which was clearly streets ahead of the performance in supermarkets and Dick Smith.

And the consumer electronics business in NZ also saw a December quarter surge with sales up 2.2% on a topline basis and a huge 6.5% on a comparable store basis.

That was after a weak first quarter and sharp falls in the three and six months to December 2010 on all measures.

Woolies said sales in its home improvement division increased 16.4% for the half year following the opening of the seven Masters stores.

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.

The company said it plans to open another 14 supermarkets and six Dan Murphy's liquor stores in the 2012 financial year.

The heat on Woolworths is largely coming from its newly aggressive Coles, which has built effective momentum from its discounting.

It will be interesting to see how effective Coles was in the final quarter of last year when it releases its sales figures on Thursday.

Analysts expressed surprise that Woolies yesterday revealed it would take a $300 million restructuring cost on Dick Smith when the capital employed in the business is around $400 million.

The cost will be taken in the first half of the 2012-13 financial year

Woolies' management did not break down where the $300 million will come from except to say it is partly a write-down of goodwill and the rest is the write-down of inventory in certain categories, as well as the cost of paying out leases on the 100 shops they plan to close.

(That's a move which will also damage the various landlords, such as Westfield, Stockland and Centro.

Some analysts reckon the $300 million too much and designed to make the newish CEO, Grant O'Brien, look good when the sale and closure of the business finally happens.