Woolworths Shares Drop Following Tough Quarterly Report

Highlights:

• Decline in Share Value: Woolworths' share price fell nearly 5% to AU$30.31 following a challenging third quarter, with market reactions influenced by modest sales growth and competitive pressures.
• Mixed Sales Results: The company achieved a 2.8% increase in total sales to AU$16,800 million, led by a 1.5% rise in Australian Food sales, while Big W struggled with a 4.1% decline amid increasing consumer caution and competitive disadvantages.
• CEO's Outlook: Outgoing CEO Brad Banducci highlighted the continuing tough trading conditions expected over the next year, with plans to focus on customer value and internal productivity to handle the competitive and low-inflation environment effectively.

Market Reaction

Woolworths Group Ltd (ASX: WOW) experienced a sharp decline in share price, falling nearly 5% to AU$30.31 in Thursday morning trade. This drop was triggered by investors reacting negatively to the supermarket giant's latest quarterly sales update.

Sales Performance

Despite a challenging quarter, Woolworths reported a 2.8% increase in total sales, reaching AU$16,800 million. Australian Food sales saw a modest rise of 1.5% to AU$12,578 million. This growth is considered soft, especially when compared to its competitors, and is attributed to a strong performance in the same period last year, moderated inflation, and the cycling out of collectibles.

Sector-Specific Challenges

The New Zealand Food segment grew 1.4%, though it faced significant challenges due to lower inflation rates and a highly competitive market. Conversely, Woolworths’ Australian B2B business outperformed with a 3.2% increase in sales. Despite exiting international markets last year, which affected year-on-year comparisons, sales in this segment grew by 5.1% when excluding prior contributions.

Big W Struggles Continue

Big W, however, reported a 4.1% decline in quarterly sales. This downturn is attributed to increased consumer caution and a trend of downtrading, particularly among budget-conscious customers. The decline in Big W’s sales continued into April, aligning with the overall quarterly trend. There are also concerns about potential downside risks due to slow Autumn/Winter clothing sales, affecting the company's expectations to reach EBIT break even in the second half of the year.

Executive Insight

Brad Banducci, Woolworths' outgoing CEO, remarked on the quarter's difficulties, noting a significant shift in customer sentiment and behavior post-Christmas. While customer metrics and sales growth were impacted, there was a slight improvement towards the quarter's end. Banducci anticipates ongoing challenging conditions over the next 12 months, driven by intense competition and subdued inflation. He emphasized the company's focus on value for customers amid cost-of-living pressures and highlighted strategic productivity initiatives to navigate the tough market environment.

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