Woolworths is expecting slowing earnings in the first half

The nation’s largest retailer has surprised the market with a profit warning about slowing sales growth at its supermarkets as shoppers pull back.

A crunch in consumer spending has triggered a profit downgrade at Australia’s largest retailer, Woolworths, as shoppers cut back on spending and flock to heavily discounted groceries in a move underscoring the nation’s tough economic outlook.

The profit warning reverberated through the retail sector to send other retail stocks lower, led by a 6 per cent slide in Woolworths.

The state of the economy will come into sharper focus on Thursday as Coles reports its first quarter sales and annual general meetings are held by retail giants JB Hi-Fi and Wesfarmers, which are expected to provide trading updates.

Recently appointed Woolworths chief executive Amanda Bardwell, only seven weeks into the role but already facing sliding earnings and court case by the competition regulator alleging misleading pricing, cast a pall over the supermarket sector when she revealed slowing sales growth coupled with deeper discounting to tempt shoppers through the doors.

“Our customers remain under real cost-of-living pressure, and we delivered much needed value to them in the quarter,” Ms Bardwell said on Wednesday, as she presented the supermarket’s first quarter sales update alongside the trading update, which revealed the supermarket was increasingly lowering prices at the cost to ­profitability.

Woolworths reported a 4.5 per cent lift in first quarter sales to $18bn.

It was forced to rely heavily on discounting and promotions to ring up sales, while a larger than expected rise in online shopping – which has slimmer margins – also undercut profitability.

Woolworths CEO Amanda Bardwell.

Shoppers at Woolworths are increasingly price-conscious, searching for value and typically buying discounted food and groceries as well as ‘‘home brand’’ items at the cheaper end of the price scale that generated less profit margin. “Customers remain highly value-conscious and continue to purchase more items on special or trade down to lower priced items including own brand,” Ms Bardwell said. “So we’ve seen more customers actually trading into opening price points (for own brand groceries) where perhaps they’re not as margin-rich as some of our other mid-priced branded products, and that is one of the factors when we look at the compression that we’re seeing in margin,” she said.

Shares in Woolworths dropped 6.1 per cent to $30.81, a five-month low, off the back of the surprise profit warning on Wednesday.

Rival Coles fell more 3 per cent as investors fretted about its sales and earnings trajectory. On Thursday Coles will update the market with its first-quarter sales.

JB Hi-Fi along and Wesfarmers, which owns retailers Bunnings, Kmart, Target and Officeworks, will hold their annual general meetings on Thursday, giving investors more insight into the nation’s spluttering economy and the impact on consumer spending.

In its profit warning for the first half on Wednesday, Woolworths tipped earnings to be $1.48bn to $1.53bn, compared to $1.59bn in 2024. The news dragged other retailers lower. JB Hi-Fi fell 2.43 per cent, Harvey Norman was down 2.16 per cent and Wesfarmers down 2.45 per cent.

Ms Bardwell described the outlook for the rest of fiscal 2025 as challenging.

“Looking ahead, we expect customers to remain extremely value conscious with cost-of-living pressures to continue for the remainder of fiscal 2025,” she said.

“We are pleased with the trading momentum in the lead-up to the important Christmas trading period.

“However, we expect the environment for fiscal 2025 to remain challenging.”

The ACCC “false discounts” court case also seems to have dented shopper perceptions of the supermarket retailer, with its “voice of consumer” measurement declining one point on the prior year to 46 points, blamed partially on the announcement of ACCC legal proceedings. During Covid-19 lockdowns Woolworths’ voice of consumer level was as high as 53 points, as the supermarket was seen as keeping Australians fed and nourished through the pandemic. Meanwhile, Woolworths’s updated guidance of first half earnings of between $1.48bn and $1.53bn was around 7 per cent below market expectations, driven by greater discounting and higher than expected online sales that have affected margin mix.

At its Australian food arm, which drives the bulk of sales and earnings, total sales increased by 3.8 per cent to $13.595bn, helped by a strong focus on value in the quarter, improved availability, Disney collectibles and strong e-commerce sales growth of 23.6 per cent, Woolworths said.

However, in October that sales growth slowed to 3 per cent.

Woolworths’s Australian B2B sales increased by 6.9 per cent to $1.473bn with sales growth for its food distribution business PFD remaining strong at 7.8 per cent.

In New Zealand supermarkets, customer scores improved further in the quarter, particularly in the key focus areas of “value for money” and “fresh”.

Total sales increased by 1.4 per cent to $1.933bn due to item growth and strong e-commerce sales, with stronger momentum in the second part of the quarter which has continued into ­October.

Its new division W Living – comprising Petstock, Big W, Healthylife and Woolworths MarketPlus – reported sales up by 17 per cent to $1.357bn, reflecting the acquisition of Petstock in January 2024. Big W sales were down 0.9 per cent in the quarter to $1.12bn, with solid item growth offset by lower average selling price as it increased its range of opening price points and lowered prices as customers traded down to more affordable options.

Originally published as Woolworths is expecting slowing earnings in the first half