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.

Woolworths CEO Amanda Bardwell. Picture: Renee Nowytarger

The nation’s largest retailer Woolworths has surprised the market with a profit warning driven by slowing sales growth at its flagship Australian supermarket arm as shoppers pull back on spending to cope with mounting cost of living pressures that are squeezing household budgets.

Consumers are increasingly hunting for value and buying on discounts and promotions while heightened competition among retailers is pinching margins for Australia’s biggest supermarket chain.

Recently appointed Woolworths chief executive Amanda Bardwell, only seven weeks in the role and also facing a Federal Court case launched by the competition regulator over alleged fake discounts, has delivered an earnings warning for the first half as sales growth at supermarkets slowed from 3.3 per cent in the first quarter to 3 per cent in October.

Woolworths said it currently expects first half earnings for 2025, including $40m of incremental supply chain costs, to be within a range of $1.48bn to $1.53bn compared to $1.595bn in the first half of 2024.

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.

On Wednesday, Woolworths reported a 4.5 per cent lift in first quarter sales to $18bn but warned its first half earnings outlook was challenged as its customers face “real cost-of-living pressures”.

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

“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. We will also continue to engage in good faith with the government and regulatory inquiries and investigations.”

In its quarterly sales update Woolworths said it has witnessed sustained cost of living pressures for its shoppers which had crimped its earnings at supermarkets for the first half, and kept a lid on sales growth over the first quarter.

In its sales update for the first quarter, Woolworths said total sales were up 4.5 per cent to $18bn.

At its Australian Food arm - which drives the bulk of sales and earnings - total sales increased by 3.8 per cent 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.

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

These competitive factors together with strong e-commerce growth leading to a lower margin sales mix which has impacted earnings, Woolworths warned.

Woolworths CEO Amanda Bardwell.

In October to date, total sales have increased by approximately 3 per cent for its Australian supermarkets.

Woolworths’s Australian B2B sales increased by 6.9 per cent 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 2.7 per cent 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 reported sales up by 17 per cent reflecting the acquisition of Petstock in January 2024. BIG W sales were down 0.9 per cent in the quarter with solid item growth offset by lower average selling price as it increased its range of opening price points, lowered prices and customers traded down to more affordable options.

Last month the ACCC launched its blockbuster cases against the supermarket giants, Woolworths and Coles.

The competition watchdog launched one case each against Coles and Woolworths in the Federal Court, alleging they breached Australian Consumer Law by “misleading consumers through discount pricing claims” on the products.

It was alleged groceries were sold at Woolworths and Coles at regular long-term prices, which remained the same, excluding short-term specials, for at least six months and in many cases for at least a year.

The products were then subject to price rises of at least 15 per cent for brief periods, before being placed in Woolworths’ “Prices Dropped” promotion and Coles’ “Down Down” promotion, at prices lower than during the price spike but higher than, or the same as, the regular price which applied before the initial spike.

ACCC chair Gina Cass-Gottlieb said the Woolworths and Coles discounts “were, in fact, illusory”.

It has been alleged Woolworths applied the “fake” promotion to 266 products across 20 months between September 2021 and May 2023, while the ACCC claimed Coles falsely discounted 245 products across 15 months between February 2022 and May 2023.

In court last week at a directions hearing, counsel for Woolworths and Coles strongly denied accusations of fake discounts by saying almost all followed price-hike requests from food and grocery suppliers to make later discounts indeed genuine. Counsel for Woolworths, Cameron Moore SC, told Justice Michael O’Bryan on Wednesday the ACCC case was “misconceived” and the price discounts offered to shoppers were “factual”.

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