Australian grocer Woolworths flags lower earnings as cost-of-living pressures bite

By Echha Jain

(Reuters) -Supermarket giant Woolworths on Wednesday said first-half earnings from its flagship Australian food division would fall and warned of a tough road ahead as cost-of-living pressures squeeze consumer wallets and curb spending.

Shares of the company fell as much as 6.3% to A$30.75 in early trade, the biggest intraday fall since Feb. 21.

Australia’s central bank has maintained interest rates at a 12-year peak while inflation remains above its targeted levels, leading to higher housing costs and tighter consumer spending, including on food.

“Looking ahead, we expect customers to remain extremely value-conscious with cost-of-living pressures to continue for the remainder of FY25,” new Woolworths CEO Amanda Bardwell said, referring to the financial year ending June 30, 2025.

Woolworths and its main competitor Coles, which together account for about two-thirds of Australian grocery sales, are also facing scrutiny from lawmakers and regulators concerned about potential excess profits as consumers grapple with high interest rates.

Woolworths said it would continue to engage in good faith with the government and regulatory inquiries and investigations.

The supermarket operator forecast it would report first-half operating earnings in the range of A$1.48 billion ($970.73 million) to A$1.53 billion for its Australian food division. This includes the impact of A$40 million of incremental supply chain costs and compares to A$1.60 billion it reported for the same period last year.

At the midpoint, the forecast is about 9% below Citi and about 7% below Visible Alpha consensus expectations.

“The downgrade has been driven by greater discounting and higher than expected online sales that have impacted margin mix. Woolworths appears to have lifted discounting to improve sales momentum in the face of weakening brand perception,” Citi analysts said in a note.

Woolworths said increased promotional efforts, driven by customer interest in specials and greater savings, boosted sales momentum in the first quarter ended Sept. 30. However, this also resulted in a less favourable sales mix, leading to lower profit margins.

Woolworths posted total group sales of A$18 billion for the September quarter, compared with A$17.22 billion a year ago, beating a Visible Alpha consensus estimate of A$17.25 billion.

“We are optimising our commercial program to offer compelling value to customers while improving promotional effectiveness as well as adopting prudent cost settings for Q2,” Bardwell said.

($1 = 1.5246 Australian dollars)