The Woolworths Group Ltd (ASX: WOW) share price is under pressure on Tuesday.
At the time of writing, the retail giant's shares are down 7% to $37.60.
Why is the Woolworths share price sinking?
Investors have been selling down the Woolworths share price this morning after the retail conglomerate released an update on its performance during the first half of FY 2022. That update revealed that Woolworths has had a challenging six months.
The Australian Food business reported sales growth of 2% during the second quarter. This compares to first quarter growth of 3.9%, bringing its first half sales growth to 3% year to date.
Management notes that since the easing of lockdowns in NSW and Victoria during October, sales in Australian Food have moderated as customers return to more normal shopping habits. In addition, sales have been impacted by inclement weather and the ongoing decline in tobacco sales.
Unfortunately, as well as its softening sales, the segment has incurred significant costs relating to COVID-19. As a result of these direct and indirect costs, Australian Food EBIT is expected to be $1,190 million to $1,220 million during the first half. This compares to FY 2021 first half (27 weeks) Australian Food EBIT of $1,329 million.
Elsewhere, the BIG W business delivered an improved performance during the second quarter. However, its sales were still down 3.3% over the prior corresponding period. In light of this, BIG W EBIT is expected to be just $20 million to $30 million for the half, down from $133 million a year earlier.
Finally, the New Zealand Food business has been the star performer. Management advised that its sales growth has been strong in first half, benefitting from extended lockdowns and higher inflation in the country.
"One of the most challenging halves"
Woolworths Group CEO, Brad Banducci, revealed that the first half was an extremely challenging period.
He explained: "The first half of F22 has been one of the most challenging halves we have experienced in recent memory due to the far-reaching impacts of the COVID Delta strain and its impact on our end-to-end stock flow and operating rhythm. We have continued to put the health, safety and wellbeing of our customers and team first in the context of this challenging and volatile operating environment."
"The ongoing material costs of operating in a COVID environment has impacted our expected earnings in H1. COVID has had a significant impact on costs, even more so than last year due to the combination of both direct COVID-related costs, together with the indirect impacts from disruption caused by COVID. This includes the significant disruptions we have seen across the end-to-end supply chain, and the material inefficiency this causes in our stores, distribution centres and transportation," he added.
