Woolworths Slumps as Key Sales Measure Falls at Record Pace

  • Supermarket chain sees first-half earnings below A$1 billion
  • Shares slump the most since February in Sydney trading

Woolworths Ltd. said its key measure of sales in the first quarter fell at the fastest rate in records dating back to at least 2005, as Australia’s largest supermarket chain discounted produce to fend off competition from Aldi and Coles. The shares slumped.

The stock fell 8.5 percent at 11:30 a.m. in Sydney, the sharpest decline since Woolworths cut its full-year profit forecast in February. Sales from Australian food and liquor stores open at least 12 months slipped 1 percent in the 14 weeks to Oct. 4, the company said in a statement Thursday. Net income in the first half of 2016 will fall as much as 35 percent to A$900 million ($639 million) to A$1 billion before one-time items, it said.

Chief Executive Officer Grant O’Brien, who has yet to be replaced after announcing his retirement in June following a “disappointing” performance, faces battles on multiple fronts as competitors undermine the company’s supermarkets business, its Big W stores suffer from weakness in Australia’s department store sector, and its Masters home improvement outlets struggle to compete with Wesfarmers Ltd.-owned market leader Bunnings. The Sydney-based company said it spent A$100 million on discounts during the quarter to lower prices for food and liquor customers.

“It’s pretty disappointing on almost every metric; seeing a 1 percent drop in like-for-like sales is a huge negative,” Angus Nicholson, a market analyst at IG Ltd., said by phone from Melbourne. “The hands on the wheel have really slipped in guiding this company and I don’t think we’re necessarily at the bottom.”

After dropping 0.9 percent in July, sales from Woolworths’s Australian grocery stores open at least 12 months have now put in two consecutive quarters of declines. They had not previously fallen in 39 consecutive quarters since the September quarter of 2005. Comparable sales from Coles food and liquor stores, also owned by Wesfarmers, increased 3.6 percent in the most recent quarter, Wesfarmers said Oct. 22.

Australian supermarkets face pressure from slowing inflation while consumers have a poor perception of Woolworths’s produce quality, according to Bloomberg Intelligence.

Before it's here, it's on the Bloomberg Terminal.