Cost-of-living pressures weigh on Woolies’ bottom line

Australia’s largest supermarket says cost-of-living pressures are weighing on its bottom line as it announced a surprising profit warning.

Woolworths has issued a surprising profit warning, lowering its earnings forecast for the first half of the 2025 financial year.

The nation’s largest retailer said Aussies were doing it tough and increasingly looking for discounts and sales promotions.

While Woolworths said this was good for its sales volumes, it meant lowering margins, putting pressure on the retailer’s bottom line.

In morning trade, the supermarket giant’s shares are down almost 6 per cent to $30.96 following the market announcement.

“Food inflation has continued to moderate in Australia and New Zealand, with average prices in quarter one below the prior year for the third consecutive quarter,” Woolworths chief executive Amanda Barwell said.

Woolworths noted fruit and vegetables returned to modest inflation in the quarter.

Groceries are a significant item in the consumer price index (CPI), given how much Aussies spend on them.

Woolworths says customers are increasingly shopping for specials. Picture: NewsWire/ Emma Brasier

Moderating food inflation could lead to a lower CPI number when it is announced at 11.30am on Wednesday.

Ms Barwell, who just seven weeks into the job is facing an ACCC investigation into alleged fake discounts, has delivered an earnings warning for first-half growth, which has fallen from 3.3 per cent in the first quarter to 3 per cent in trading to October.

Ms Barwell said customers were under real financial pressure and the company was offering value to them in the quarter.

“We offered our customers more specials with larger savings, increased shelf capacity of our more affordable own brands, made it easier to find the best unit prices, provided extra value through Everyday Rewards and brought a little joy to families through the Disney Worlds of Wonder collectibles campaign,” she said in a statement to the ASX.

Woolworths said it expected first-half earnings for 2025, including $40m of incremental supply chain costs, to be between $1.48bn and $1.53bn. This is down from $1.595bn in the first half of 2024.

Woolworths said sales growth was high due to discount shopping. Picture: NewsWire / Glenn Campbell

In a trading update accompanying its first quarter sales report, Woolworths warned that while the key second quarter trading period was yet to end, its flagship Australian food (supermarkets) earnings for the first half were forecast to be below previous expectations.

Group sales totalled $18bn in the first quarter, up 4.5 per cent on the previous corresponding period. Australian food sales increased 3.8 per cent year on year to $13.6bn, while eCommerce sales grew 21.1 per cent to $2.4bn.

Ms Barwell said much of Woolworths’ growth was due to focusing on value in the quarter, while promotional sales and e-commerce sales also contributed.

“Customers remain highly value-conscious and continue to purchase more items on special or trade down to lower-priced items including own brand,” she said.

“These competitive factors together with strong eCommerce growth is leading to a lower margin sales mix which has impacted earnings. In October to date, total sales have increased by approximately 3 per cent.”