The Woolworths Group Ltd (ASX: WOW) share price will be on watch today.
This follows the release of the retail giant's first quarter update.
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Woolworths share price on watch following soft Q1 update
For the quarter ended 2 October, Woolworths reported a 1.8% increase in group sales to $16,363 million. This growth was underpinned by its Big W and Australian B2B businesses, which offset softer sales from the Australian Food business and its New Zealand equivalent.
In respect to the key Australian Food business, its sales were down 0.5% over the prior corresponding period to $12,204 million. This was due to sales weakness in the online channel, which fell 10.8% to $1,239 million. Store-originated sales from Woolworths supermarkets rose a modest 0.5% to $10,608 million and its Metro Food store sales grew 10.8% to $284 million.
Overall, Australian Food comparable sales dropped 1.1% over the prior corresponding period, well short of Goldman Sachs' forecast of 3% growth. That's despite inflation driving average prices 7.3% higher compared to the first quarter of FY 2022.
Management commentary
Woolworths CEO, Brad Banducci, commented:
In our Food businesses, sales were below the prior year as we cycled strong growth driven by COVID-related restrictions in F21 and F22. Australian Food sales decreased by 0.5% and New Zealand Food sales were down 2.5% compared to the prior year. On a three-year compound annual growth basis, sales in Australian Food were up 5.3% and up 4.7% in New Zealand Food.
In Australian B2B, Q1 sales increased by 26.0% compared to the prior year primarily due to strong growth from PFD. BIG W sales were up 30.1% (3-yr CAGR: +8.9%) cycling lockdown-related temporary store closures in the prior year.
eCommerce sales in Australian Food (-10.8%) and BIG W (-51.8%) were lower than the prior year as customer mobility increased. However, on a three-year CAGR, sales growth remained strong, increasing by 43.5% and 43.7% respectively. eCommerce penetration in Australian Food was 10.2%, 6.2 pts above Q1 F20 and 9.4% in BIG W, 5.3 pts above F20. New Zealand eCommerce sales grew at 5.9% (3-yr CAGR: +23.3%) with penetration of 14.2%, up 5.5 pts on F20.
Outlook
Banducci advised that sales trends have improved in October in the Australian Food business and there are signs of stabilisation in the New Zealand Food trading environment. However, the latter's earnings are being impacted by the combination of lower sales and materially higher wage inflation.
Nevertheless, the CEO appears cautiously optimistic on the remainder of the first half. He concludes:
There are 51 days until Christmas and we are very focused on delivering a much-needed inspirational and affordable festive season for our customers. Ongoing supply chain volatility and the possibility of another wet summer will be key challenges to navigate but we are seeing strong early sell through of seasonal lines and we remain cautiously optimistic for the period ahead.
