Why is the Woolworths share price sliding 7% today?

Aussie investors heed Target’s inflationary warning…

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Key points

  • The Woolworths share price is tumbling almost 7% lower on Thursday afternoon
  • Today's fall comes as US retail giant Target showed the damage toll from inflation in its first-quarter result
  • Investors are selling off Woolworths shares in response

The Woolworths Group Ltd (ASX: WOW) share price is in the doghouse today, joining a raft of other retailers.

In afternoon trade, shares in Australia’s largest supermarket operator are down a considerable 6.8% to $34.735. If the pain continues, it will mark the worst one-day performance for the company since it split away from Endeavour Group Ltd (ASX: EDV) in June 2021. However, that fall in value was attributable to removing ownership value in the liquor retailer. To find a valid comparison, we need to go back to 31 March 2020, when it fell by 8%.

So why is one of Australia’s biggest companies taking a plunge today?

Retail has a target on its back

A general concern for retail shares was set into motion last night after one of the most recognisable retailers in the world reported disappointing first-quarter numbers.

Ringing a warning bell on inflation, bricks and mortar retailer Target Corporation (NYSE: TGT) told shareholders that rising labour and freight costs took a bite out of the company’s bottom line. On top of this, customers tightened their budgets during the quarter — perhaps due to inflation — resulting in reduced spend on discretionary items.

The challenges led to Target missing analysts’ earnings per share (EPS) estimates by 28.5%. As a result, the retail stock fell a head-spinning 25% overnight — its biggest fall since 1987.

Back on Aussie markets, it appears ASX investors are taking Target’s disastrous day as a cautionary tale for local retailers.

By the looks of it, the Woolworths share price is not immune to the concern. However, in its recent third-quarter results, Woolworths largely inferred that higher costs had been passed on to the customer. The company illustrated this in its Q3 results, stating:

Woolworths Retail sales benefited from a successful trade plan, including Prices Dropped on Healthier Products, elevated COVID impacted in-home consumption, and shelf price inflation due to input cost pressures.

Nonetheless, investors are being cautious today given the backdrop of the worrisome numbers from Target and Walmart.

Woolworths share price in review

The Woolworths share price is now barely hanging on to a positive return over the past year. At the time of writing, shares in the supermarket giant are up 1.3% in the 12-month period. Although, total returns (with dividends included) come to 10.8% during the same timeframe.

For comparison, Coles Group Ltd (ASX: COL) is up 8.2% compared to a year ago without including dividends.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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