The Woolworths Group Ltd (ASX: WOW) share price is under pressure on Thursday.
In morning trade, the supermarket giant's shares are down almost 5% to $30.31.
Image source: Getty Images
Why is the Woolworths share price sinking?
Investors have been selling the retailer's shares this morning in response to the release of a third-quarter sales update.
According to the release, the company overcame challenging conditions to deliver a 2.8% increase in total sales to $16,800 million.
Australian Food sales rose 1.5% to $12,578 million compared to the prior corresponding period. While on paper this looks reasonably soft and falls short of its rival's growth, it is worth noting that Woolworths was cycling a particularly strong period of growth a year earlier. In addition, it battled a material moderation in inflation and the cycling of collectibles.
Since then, adjusted total sales growth in April was broadly in line with the third quarter, with inflation continuing to moderate and items showing ongoing modest growth.
New Zealand Food sales grew 1.4% in Australian dollars during the quarter. This was despite being impacted by materially lower inflation and a competitive trading environment. Adjusted sales growth in April has remained broadly in line with the third quarter.
A stronger performer was the Australian B2B business, which reported sales growth of 3.2% over the prior corresponding period. This was despite its sales growth being impacted by the exit of its international businesses last year. Excluding their contribution in the prior year, sales increased by 5.1%.
Finally, the Big W business appears to be continuing to lose market share to Kmart. It reported a 4.1% decline in sales for the quarter. Management advised that this reflects increased consumer caution and downtrading.
This was most evident among budget customers. Big W sales declines in April have been broadly in line with the third quarter. Management also warned that a slow start to Autumn/Winter clothing sales is creating some downside risk to its previous expectations of EBIT breakeven in the second half.
'A challenging quarter'
Woolworths' outgoing CEO, Brad Banducci, doesn't expect the challenging trading conditions to ease any time soon. He commented:
It was a challenging quarter across the Group with a noticeable shift in customer sentiment and shopping behaviours since Christmas. Customer metrics and sales growth across the Group have been impacted but encouragingly unit volumes and customer metrics improved as the quarter progressed and we expect more stable trading in Q4.
Our focus for the rest of F24 remains on providing value for our customers reflecting their cost-of-living pressures. We expect trading conditions to be challenging for the next 12 months due to competition for customer shopping baskets and as inflation returns to a very low single digit range.
However, we are well positioned to manage this more challenging environment through an ongoing focus on our Customers and Team, and our end-to-end productivity plans.
