Woolworths Group Ltd (ASX: WOW) shares were out of form in September.
During the month, the supermarket giant's shares lost almost 7% of their value.
As a comparison, the S&P/ASX 200 Index (ASX: XJO) rose 2.2% over the period.
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Why did Woolworths shares tumble in September?
Investors were hitting the sell button last month after Woolworths and Coles Group Ltd (ASX: COL) were hit with proceedings in the Federal Court by the Australian Competition and Consumer Commission (ACCC).
The competition regulator alleges that both supermarket operators breached the Australian Consumer Law by misleading consumers through discount pricing claims on hundreds of common supermarket products.
The ACCC notes that products were subject to price increases for brief periods before being placed in promotions at prices lower than during the price spike but higher than, or the same as, the regular price before the price spike.
Commenting on the legal action, ACCC chair Gina Cass-Gottlieb said:
We allege that each of Woolworths and Coles breached the Australian Consumer Law by making misleading claims about discounts, when the discounts were, in fact, illusory.
We also allege that in many cases both Woolworths and Coles had already planned to later place the products on a 'Prices Dropped' or 'Down Down' promotion before the price spike, and implemented the temporary price spike for the purpose of establishing a higher 'was' price.
What else?
Only a few days later the ACCC was back with more bad news, which weighed further on Woolworths' shares.
The competition regulator released its interim report on Australia's supermarket sector.
ACCC deputy chair Mick Keogh commented:
During the remaining five months of our Inquiry we will scrutinise whether, and if so how, the supermarkets may be using market power and the economic implications this has for Australian consumers and suppliers.
We will examine whether supermarkets are exercising market power to increase retail prices more than is necessary to accommodate increases in the wholesale prices supermarkets pay. We are also examining whether supermarkets are engaging in other business practices that may cause detriment to consumers or suppliers.
Should you buy the dip?
Goldman Sachs isn't concerned by the above and thinks investors should be buying the dip. It said:
None of the listed areas of further deep-dive are a surprise based on the initial scoping/material submitted to ACCC and channel checks. […] Net net, while we do not take any view on the final outcome, we remain of the view that earnings and valuation risks from the Inquiries are sufficiently priced in and reiterate Buy WOW and Neutral COL.
Goldman has a buy rating and $40.10 price target on Woolworths shares.
