What: The share price of Australia's largest retailer Woolworths Limited (ASX: WOW) has been crushed today with the stock sinking around 8% in morning trade.
So What: The catalyst for the sell-off was the release of the group's Q1 sales results which also included revised first half guidance.
Given the sharp sell-down in Woolworths' shares this morning, this release has obviously been viewed as disastrous by the market. Amongst the low-lights from the release were a 0.8% increase in total sales (excluding petrol) to $14.4 billion, a decrease in same store sales within the Australian Food and Liquor division of 1% and an 8.1% decrease in comparable sales for the General Merchandise sales (which captures the Big W business).
The most disappointing news however was updated first half earnings which saw the group downgrade guidance to a net profit after tax of between $900 million and $1 billion. This represents a massive decline of between 28% and 35% on the prior corresponding period.
Now What: While the CEO Mr Grant O'Brien stated that he was pleased with the positive steps being taken to transform the business, there is no doubt that investors will be alarmed that a supposedly stable, blue-chip company can experience such a massive swing in profitability.
The share price performance for what is generally viewed as a defensive investment will also trouble many investors. While the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down around 2% over the last 12 months, Woolworths shares are now registering a drop of 29%.
In comparison, the owner of competitor Coles, Wesfarmers Ltd (ASX: WES) has seen its share price decline 7% while grocery wholesaler Metcash Limited (ASX: MTS) is down 54% over the same period.
With analysts set to slash their forecast earnings in response to the latest guidance, investors will need to be careful about seeing the latest price decline as a buying opportunity. Until a new base level of earnings has been reliably established the stock price may continue to come under pressure.
