The Woolworths Group Ltd (ASX: WOW) share price hasn't been spared from the current market rout.
Against a backdrop of soaring food inflation, Woolies shares have slipped 8.4% so far this year to sit at $35.23.
This has been enough to outperform the S&P/ASX 200 Index (ASX: XJO), which has backpedalled 10% since the start of the year.
But over the last month, Woolies shares have lagged the broader market. They've dropped by 7.7% compared to the ASX 200's more palatable 3.3% fall.
So, what's going on with Woolies shares? Let's take a closer look.
Woolies' FY22 results recap
Woolies delivered 9.2% revenue growth in FY22, with the core Australian food business growing its top line by 4.5%.
Earnings before interest and tax (EBIT) came in 2.7% lower across the group as Woolies battled store and supply chain disruptions throughout the year.
Commenting on current trading conditions, CEO Brad Banducci noted that the supermarket is seeing a gradual change in consumer behaviour as inflation puts pressure on household budgets. He noted:
While still very difficult to separate from the COVID-related impacts of the last two and a half years, we are seeing some customers trade down from beef into more affordable sources of protein and trade across from fresh vegetables into more affordable frozen and canned offerings.
In other news, Woolies' acquisition of MyDeal.com.au Ltd (ASX: MYD) became legally effective yesterday.
The supermarket has picked up an 80% stake in the online marketplace at an enterprise value of $243 million.
MyDeal's key management shareholders have retained a minority 20% stake, with MyDeal shares now suspended from trading.
Have Woolworths shares got their mojo back?
David Wilson from First Sentier thinks so. In an episode of Livewire's Buy Hold Sell, Wilson noted Woolies had a "terribly poor result" in the December half.
But he thinks the tide could be turning for Woolies:
We think that they've actually got their mojo back, they're taking out costs, they're growing their market share, and they're really well placed from an online point of view. So for us, it's a buy.
What do brokers think about Woolies shares?
Wilson isn't alone in his bullish view on Woolies shares.
After digesting Woolies' FY22 results, analysts at Goldman Sachs reiterated their conviction buy rating on Woolies shares with an improved price target of $44.10. This implies potential upside of 25% over the next 12 months.
In a recent broker note, Goldman said it continues to prefer Woolworths shares as the top pick in the Australian consumer space. The broker highlighted Woolies' digital and omnichannel advantage to drive further market share and margin gains.
The broker concluded:
Despite the softer topline environment, we believe that WOW's reducing COVID costs, strong Cartology growth as well as careful execution will result in EBIT margin expansion.
Goldman believes the key downside risks for Woolies include worse Australian food volumes, an increase in competitive intensity, online sales underperformance, and poor management of cost inflation.
