Woolworths share price falls despite strong Q1 sales growth

Woolworths was in fine form during the first quarter. Here's what it reported.

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The Woolworths Group Ltd (ASX: WOW) share price is falling on Wednesday.

In morning trade, the retail giant's shares are down almost 1% to $36.11.

Why is the Woolworths share price falling today?

Investors have been selling the company's shares this morning despite it delivering a strong first-quarter update.

According to the release, Woolworths reported a 5.3% increase in total sales over the prior corresponding period to $17,224 million.

As a comparison, UBS was forecasting a 4.7% increase in sales to $17.2 billion.

This growth was driven largely by its Australian Food business, which delivered a 6.4% increase in sales to $13,082 million. Management advised that this reflects solid growth across all businesses.

Woolworths Food Retail grew by 6.1% supported by strong item growth despite a moderation in inflation. WooliesX sales increased by 19.2% with both eCom and other WooliesX businesses growing strongly. And Accelerator revenue increased by 135.9% reflecting strong growth in sub-60 minute delivery through MILKRUN.

Its New Zealand food business was also on form, reporting a 5.8% increase in sales to $1,906 million. This was partly boosted by currency tailwinds, with sales in New Zealand currency increasing by 2.8%.

Also delivering growth during the quarter was the Australian B2B business, which posted a 1.5% increase in sales to $1,127 million. This reflects the wind-down of Woolworths International and the sale of Summergate, which was offset by solid growth from PFD and B2B Supply Chain.

The only real disappointment was the performance of the Big W business. It posted a 5.5% decline in sales to $1,131 million. Management advised that this reflects a more challenging trading environment with customers continuing to cut back on discretionary categories.

Management commentary

Commenting on the quarter, Woolworths CEO, Brad Banducci, said:

Importantly for our customers, inflation in our Food businesses continued to moderate over the quarter driven mainly by deflation in Fruit & Vegetables and Meat as lower input costs in these categories have led to lower retail prices. Group sales remained solid, increasing by 5.3%. Customer trends remain broadly in line with the prior quarter with overall demand resilient; however, we are seeing our customers, particularly our Saver Families and Young Singles and Couples, ever more focused on value in all forms which has impacted our customer scores.

Banducci also spoke positively about the current quarter. He adds:

Looking ahead, we have strong plans in place for the key Christmas and holiday trading period and while sales trends in October to date have remained broadly in line with the trend lines in Q1, the trading environment remains uncertain and value for money remains a key focus for our customers across all our businesses. Keeping our team safe and helping all our customers have an inspirational and affordable festive season remains our top priority. Thank you as always to our team for their commitment and our customers for their support.

Motley Fool contributor James Mickleboro 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 no position in any of the stocks mentioned. 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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