The Woolworths Group Ltd (ASX: WOW) share price is having a difficult session.
In morning trade, the retail giant's shares are down 4% to $31.81.
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Why is the Woolworths share price sinking today?
Investors have been hitting the sell button this morning for a couple of reasons.
One is the broad market selloff after the US Federal Reserve delivered a 0.75% interest rate hike and warned of more pain to come.
The other reason for the weakness in the Woolworths share price today is the release of the company's first quarter sales update, which has fallen short of expectations.
How did Woolworths perform in the first quarter?
For the quarter ended 2 October, Woolworths delivered a 1.8% increase in group sales to $16,363 million.
This was driven by better than expected performances from its Big W and Australian B2B businesses, which offset softer performances from the Australian Food and New Zealand food businesses.
The key Australian Food business reported a 0.5% decline in sales to $12,204 million, which equates to a 1.1% comparable store sales decline. This was due largely to its online channel, which reported a meaningful pullback in sales after benefiting from lockdowns a year earlier
It also means that Woolworths is underperforming Coles Group Ltd (ASX: COL). Late last month, its rival reported a 2.1% increase in comparable store sales for the same period.
Broker reaction
Analysts at Goldman Sachs highlight that while the overall sales result was in line with its estimates, its Australian and New Zealand Food businesses disappointed. The broker commented:
Group sales of A$16.4B came in largely in line with expectations though the AU and NZ Foods businesses were slightly weaker, offset by slightly stronger AU B2B and Big W.
Sales of A$12.2B and growth of -0.5% was a continuation of the trends for first 8 weeks in FY23. 1Q23 comp sales of -1.1% is below peer COL of +2.1% and is largely driven by a decline in comp item growth of -8.6%, offset by inflation of +7.3% (COL +7.1%). This decline in item growth is primarily coming from a reversal of e-Commerce, which fell 10.8% YoY and saw sales penetration reduce from 11.4% 1Q22 to 10.2% in 1Q23 (GSe: 10.3%).
Goldman also revealed what it will be looking out for in the second quarter of FY 2022. It said:
We look for further clarity on the October exit rate for the Australian and NZ food businesses and look to understand whether positive mix will return as personalised offers begin to take effect. As Covid effected comps roll off we look for details on second quarter sales volume, mix and pricing as well as the strategy heading into Christmas with details on how consumers shift to value will be approached. Additionally, we look forward to more colour on the strategies to address the slowdown in New Zealand.
