Woolworths Limited 1Q sales grow at only 3%: Should you sell?

With an ongoing price war between Woolworths Limited (ASX:WOW) and Wesfarmers Ltd (ASX:WES), it makes one wonder what Mr Market was expecting from this $45 billion company in just 14 weeks.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Today, Mr Market has sent shares in supermarket giant Woolworths Limited (ASX: WOW) sharply lower, down 4.5% at the time of writing, on the back of its first quarter sales result.

For the 14 weeks ended 5 October 2014, Woolies, a $45 billion company with a dominant market share of groceries and liquor in Australia, achieved $16.2 billion in sales. When compared to the prior corresponding period in FY14, it represents 3.0% growth in the top line.

Sales from Australian Food, Liquor and petrol were up 2.6% combined, New Zealand Supermarkets (in AUD) were up 5.6%, General Merchandise was down 0.4%, Hotel sales were down 1% and Home Improvement – which includes Masters and Home Timber and Hardware – was up 20.7%.

This compares with key rival Wesfarmers Ltd (ASX: WES) – owner of Coles supermarkets and more – which last week achieved a 5.8% jump in Coles food and liquor sales, an 11% increase from Bunnings Warehouse, an 8% jump from Officeworks and a 2.9% increase from Kmart. Despite a 4.6% fall in Target sales, Wesfarmers shares popped 1.3% on the day of its results.

So why are Woolworths shares being hit so hard?

This is a fair question for any investor to ask but the simple answer is, presumably, that Mr Market was expecting a better result. Especially after all the fuss made over Wesfarmers' results last week, some may see today's 'weak' results as a sign that Woolworths may come off second best from the ongoing price war.

Didn't investors already know the market is competitive?

3% growth from a big supermarket with an established market share is a good result. However, it appears good wasn't good enough for Mr Market. Especially, when we consider the company's valuation.

I've been saying it for a while but investors need to realise Woolies isn't the growth stock it once was. Indeed I find it hard to believe it'll beat the market from its current price.

So it is time to sell your shares?

Absolutely not. Woolies continues to be one of the best defensive businesses on the market. Although it is facing increased competition from Wesfarmers, as well as foreign giants such as Aldi and Costco. Furthermore, its Masters home improvement chain isn't ticking along quite as fast as shareholders would like. However, it pays a good dividend and is unlikely to go belly-up in even the worst market crashes.

What of the outlook?

Despite a slow first quarter, sales are expected to regain traction in coming months. Woolies CEO, Grant O'Brien said: "While first quarter sales were lower than expected, we are confident that our trading plans will improve momentum in the second quarter which includes the key Christmas period."

Remember, investing is a marathon, not a sprint. And unless you believe today's slightly lower-than-expected results significantly and structurally change your investment case for Woolies, there should be no reason to panic.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »