The Woolworths Group Ltd (ASX: WOW) share price has ticked higher on Thursday morning. At the time of writing, the shares are up 1.41% and changing hands at $28.
It's welcome news for investors after the Australian supermarket giant's shares dropped to a six-year low of $25.91 two weeks ago. For the year, the shares are 9.12% higher.
The uplift follows the company's first-quarter sales update yesterday morning, where it reported a 2.7% year-on-year increase in sales. This comprises 2.1% growth in Australian Food sales, a 6.2% increase in Australian B2B sales, 2.5% growth in New Zealand Food sales, and a 3.3% increase in W Living sales.
Following the news, analysts at Macquarie Group Ltd (ASX: MQG) have written a note to investors with an update on their price target on the stock.
Price target lowered on Woolworths shares
The broker confirmed its neutral rating on Woolworths shares. But it lowered its 12-month target price to $29.60, down from $30.30 previously.
At the time of writing, that represents a potential 5.7% upside for investors.
"Valuation: TP reduces ~2% to $29.60. Earnings changes drive ~5% reduction all else equal, with roll-forward of DCF partially offsetting this," Macquarie said in its note.
"Neutral. Some incremental positives in today's update, although we expect a material recovery in top line and margins to take time. Execution on cycling disrupted 2Q creates risk."
The broker also reduced its earnings per share guidance for FY26, FY27, and FY28 to -3%, -5%, and -6%, respectively. It cites a slight tempering of growth and, therefore, margins in AU Food for the change.
What else did Macquarie have to say?
The broker said the quarterly AU Foods sales result is "relatively soft" but notes there were signs of improvement throughout the quarter and into October.
"The trajectory is improving, however we taper our near-term growth forecasts and still expect the group to lose market share as cross-shop out of WOW and into COL remains a concern. Further, margin recovery still a risk as price re-investment continues. Management said promotions increased through Sep-25 to drive traffic. We now forecast AU Food EBIT grows ~4% y-y in FY26E, at the bottom of WOW's qualitative guidance (mid-to-high single digit % growth)," the broker said.
Macquarie also raised concerns about price reductions and continued pressure on margins.
"Industry feedback suggests WOW's competitors are quickly matching price reductions, which has been the focus of reinvestment from cost savings. Although price investment remains a lever, we were pleased to see an apparent broadening of the focus on where WOW can drive the topline," Macquarie said.
"In our view, the group could continue to focus on reinvesting in areas outside of price that can ultimately be replicated by competitors, and diminish margins across the sector."
