Australia’s Woolworths sees lower earnings from food unit, shares slide 10%

Australia’s Woolworths sees lower earnings from food unit, shares slide 10%

Australia’s biggest supermarket chain Woolworths Group (WOW.AX) on Tuesday forecast lower first-half operating income from its domestic food business as easing COVID-19 curbs brought an end to pandemic stockpiling.

Shares of the grocer tumbled as much as 10.6% to A$36.26, hitting their lowest level in nearly six months, while the broader market (.AXJO) fell 0.4%.

Woolworths and smaller rival Coles Group (COL.AX) benefited last year from nationwide pandemic-induced lockdowns, as shoppers stocked up on rice, pasta and toilet paper.

Sales in the Australian food business have slowed since restrictions began easing in October and customers returned to “more normal shopping habits”, while unusually wet weather in New South Wales also dented performance, Woolworths said.

The downgrade is a one-off, however, and should not affect the company’s long-term outlook, said Mathan Somasundaram, chief executive of DeepData analytics.

“It was inevitable that all retail stocks return to a normal cycle after years of government handout-boosted spending … WOW is still the dominant supermarket chain and the inflation cycle works in their favour,” he said.

Shares of Coles were trading 5.3% lower at A$16.92 by 1148 GMT.

“The first half of FY22 has been one of the most challenging halves we have experienced in recent memory due to the far-reaching impacts of the COVID Delta strain,” Group Chief Executive Brad Banducci said.

But the company said there was good sales momentum going into the key Christmas trading period, and expects improved performance in the second half.

Woolworths estimated pandemic-related expenses of about A$150 million for the half and said supply chain disruptions due to the crisis would cost it another A$60 million to A$70 million.

It expects earnings before income tax (EBIT) of between A$1.19 billion and A$1.22 billion ($870.4 million-$849 million) from the Australian food business, down from A$1.31 billion last year.

($1 = 1.4017 Australian dollars)

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