Attention Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) shareholders: look away now…
Down 10% and 5%, respectively, shares of the two diversified supermarket operators are among the S&P/ASX 200's (ASX: XJO) (Index: ^AXJO) biggest losers.
What happened?
It's been a tough two-year period for the two major supermarket operators. Concerns that an all-out price war may ignite between Coles (owned by Wesfarmers) and Woolworths, both companies' share prices are currently lower than they were this time two years ago.
Throw in the arrival and growth of Aldi, and to a lesser extent Costco, and it's easy to see why investors are lowering the expectations of their growth.
However, today's dramatic fall in share price comes on the back of the release of Woolworths' first quarter sales report this morning.
In its announcement to the ASX Woolworths revealed just a 0.4% rise in sales within its Australia Food and Liquor division, which houses the company's supermarkets, Dan Murphy's and Cellarmasters businesses. Petrol sales also fell 27.9% compared to the prior corresponding period, to $1.33 billion, on the back of a 20.3% decrease in total litres pumped.
Combining all business lines, Woolworths' first quarter sales fell 2.5% year over year. Worse still, it said it expects to report a 28% to 35% decline in half-year profit (before significant items) later in the year, as a result of "increased investments."
While Wesfarmers' Coles continues to power ahead of Woolworths both in terms of sales and profit, Woolworths will not go down without a fight and has many strings it could pull to lower the basket price for shoppers. The market may be growing increasingly concerned a full-blown price war is close at hand.
