Woolworths Group Ltd (ASX: WOW) shares had a tough time in 2024.
Although the market charged higher over the 12 months, the same could not be said for Australia's largest retailer.
During the period, the supermarket giant's shares lost a disappointing 18% of their value.
This means that the Woolworths share price underperformed the market by approximately 25%.
Why did Woolworths shares sink in 2024?
Investors were hitting the sell button last year for a number of reasons.
One of the major ones was allegations of price gouging, which eventually led to the ACCC launching an inquiry. This wasn't a good look for the company during a cost of living crisis and may have led to concerns about brand damage and consumer boycotts.
There were also calls to break up Woolworths and rival Coles Group Ltd (ASX: COL) to limit their dominance of the market. And while unlikely, it certainly seems to have weighed on investor sentiment.
In addition, the loss of market share to rivals Coles didn't help matters. This led to full year results and quarterly updates that were a touch softer than expected. Nevertheless, Woolworths still remains the clear market leader.
The loss of its long-serving CEO, Brad Banducci, is another development that likely weighed on Woolworths' shares in 2024.
And late in the year, Woolworths' earnings were impacted by supply chain disruption caused by strike action. This negatively impacted sales by approximately $140 million and Australian Food EBIT by approximately $50 million to $60 million.
Is this a buying opportunity?
Goldman Sachs sees this weakness as a buying opportunity for investors in 2025.
A recent note reveals that its analysts have put a buy rating and $36.20 price target on Woolworths' shares. This implies potential upside of 20% for investors over the next 12 months.
Goldman isn't concerned by the ACCC inquiry and believes all the bad news is priced into its share price. 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; our discussion with the channel suggests 2 issues would be most in-focus i.e. 1) price-establishment (as flagged by separate ongoing legal proceedings between the ACCC and WOW/COL) and 2) retail site access as entry barriers.
Whilst from a retail competition perspective, the ACCC highlighted the aggregate WOW AU Food(A$51B)/COL Food(A$39B) market share in Australia National Take-Home Food & Grocery sales was 57.3% in 2022/23 vs 53.6% in 2006/07 (+3.7%), it does exclude grocery sales from "category specialists" including Chemist Warehouse (FY24 Network Sales of A$9B) and Amazon (GSe CY23 GMV ~A$6B) as well as Bunnings pushing into consumables categories including Cleaning and Pet.
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.
