The Woolworths Group Ltd (ASX: WOW) share price is in focus after a challenging March quarter for the supermarket business.
Woolworths third quarter sales update
The company reported that its Australian food division grew sales by 1.5% to $12.6 billion. Woolworths’ e-commerce sales increased by 18.4%, while store-originated supermarket sales dropped 0.8% and store-originated Metro food store sales rose 2.6%.
Total inflation at the supermarket was negative 0.2%, while inflation excluding tobacco and fruit and veg was 0.1%.
Turning to the other divisions, New Zealand food sales increased 0.2% in New Zealand dollar terms to NZ$2.02 billion.
Big W sales dropped 4.1% to $1 billion and ‘other’ sales were $238 million (which includes Petstock).
What happened?
Woolworths’ CEO Brad Banducci said it was a “challenging quarter across the group with a noticeable shift in customer sentiment and shopping behaviours since Christmas”. In 2024 to date, the Woolworths share price has unsurprisingly dropped 15%.
A highlight was WooliesX – the online segment – saw e-commerce sales grow thanks to an increase in active customers and item growth.
The business to business (B2B) sales were impacted by the exit of its international businesses – excluding that, sales increased by 5.1%. Specifically, PFD sales rose by 5.4%, reflecting slower quick service restaurant (QSR) / fast food sales growth.
At Big W, the business is seeing increased consumer caution and downtrading most evident among ‘budget customers’.
Outlook for the Woolworths share price
Mr Banducci noted that unit volumes and customer metrics improved as the third quarter progressed, so it’s expecting more stable trading in the fourth quarter.
Adjusted total sales growth for Woolworths supermarkets in April was “broadly in line” with the third quarter with inflation “continuing to moderate and items showing ongoing modest growth”.
Big W has seen a sales decline in April that was in line with the third quarter, with a slow start to the colder period clothing sales, “creating some downside risks” to expectations of breakeven EBIT in the second half of FY24.
The company is focused on “providing value” for customers reflecting cost of living pressures. It’s expecting trading conditions to be challenging “for the next 12 months” due to competition for customers and inflation return to a low single digit range.
However, interestingly, Woolworths does seem to be underperforming Coles Group Ltd (ASX: COL) in terms of recent sales growth. But, if there’s a time to invest in Woolworths shares, I’d say this is the time because the Woolworths share price has dropped 17.5% in the last year, pushing up the dividend yield.
