Supermarket giant Woolworths Limited (ASX: WOW) will be under renewed pressure this morning after it announced a big profit downgrade and a first quarter sales result that fell short of expectations.
The stock crashed 7.6% to a one-month low of $25.28 in early trade as shareholders pay the price for the group's mismanagement.
Woolies warned that its first half profit could fall by as much as 35% from the same period last year as it invests heavily to stem its loss in market share to rivals like Wesfarmers Ltd's (ASX: WES) Coles supermarket chain and Aldi.
Profit for the six months to end December is now tipped to range between $900 million and $1 billion, which implies a potential consensus profit downgrade given that analysts have penciled in a 2015-16 profit of around $2.3 billion for the group.
Now we know exactly who is contributing to yesterday's soft inflation reading for groceries by the Australia Bureau of Statistics!
Woolies is being forced to swallow rising costs as it cannot afford to put prices up when shoppers are deserting the group.
The fact is, Coles has a lower cost structure as it made the necessary investments in past years when Woolies was playing in the sunshine and basking in complacency. We don't even need to talk about Aldi's costs from its barebones operations.
But even as Woolies is absorbing rising costs to keep prices down, shoppers are still not impressed enough to keep shopping at its stores. The decline in same store sales (which are stores opened for more than a year) is accelerating.
Management said that same store food and liquor sales fell 1% in the last few weeks compared to a 0.9% drop in the first eight weeks of the current financial year. Analysts polled on Bloomberg were predicting a slight improvement to a 0.7% decline.
It is only because of new stores that total Australian food and liquor sales managed to inch up 0.4% to $11.1 billion for the first quarter.
What's more, the bleeding at Woolies-owned Big W department store isn't showing much sign of letting up either as the group's general merchandise category shrunk 7.9% in the September quarter compared with the same time last year.
While sales from its home improvement businesses Masters jumped 23.5% in the quarter, that won't be enough to save it as rumors that Woolies is close to shutting down the disastrous chain intensify.
Woolies quarterly sales update stands in stark contrast to Wesfarmers Ltd (ASX: WES), which is kicking a number of goals and is likely to keep its strong lead over Woolies for the medium term at least.
It's shocking but Woolies has been lagging Wesfarmers on same-store sales growth for 23 quarters and shareholders should brace for a few more quarters of pain.
