By Byron Kaye and Echha Jain
SYDNEY (Reuters) -Australian grocer Woolworths warned first-half profit from its main Australian food division would dip as a hunt for bargains and intense scrutiny of supermarkets during a cost-of-living crisis lower shelf prices, sending its shares tumbling.
The company, which is being sued by the consumer regulator for alleged fake discounts, said sales in the September quarter rose as shoppers bought more cheap goods, but its margins were being squeezed and food profit would fall in the six months to December.
The limited first-quarter update reflects the tough environment for market leader Woolworths and rival Coles, which dominate Australian grocery sales. The companies have become targets of consumer angst about elevated living costs while they themselves face persistently high expenses.
The supermarket operators are being sued by the Australian Competition and Consumer Commission (ACCC), which accused them of jacking up prices then luring customers with relatively small discounts. They also face a host of influential government inquiries, and some lawmakers have called for them to be broken up.
Sydney-based Woolworths forecast earnings before interest and taxes between A$1.48 billion ($970.73 million) and A$1.53 billion for Australian food in the half-year ending Dec. 31, down from A$1.60 billion a year earlier. The company said the forecast was below its previous expectations, without adding what those were.
At the midpoint, the forecast is about 9% below Citi and about 7% below Visible Alpha consensus expectations.
“Costs increasing, as we see across every other business in the country, and inflation coming down, which is good for customers, makes for a challenging mix,” said CEO Amanda Bardwell told reporters.
“We’ve got customers ever more seeking value and … trading more into deeper specials and promotions. That absolutely has an impact.”
Bardwell declined to comment on the ACCC lawsuit but said “what’s important … is continuing to focus on how we rebuild customer trust in the current environment”.
Shares of Woolworths were 6% lower in morning trade, contributing to a broader market decline of 0.3%, as investors digested the profit warning. Shares of Coles, which is expected to give a quarterly update on Thursday, were down 2%.
“The downgrade has been driven by greater discounting and higher than expected online sales that have impacted margin mix,” Citi analysts said in a note.
“Woolworths appears to have lifted discounting to improve sales momentum in the face of weakening brand perception.”
Australia’s central bank has maintained interest rates at a 12-year peak while inflation remains above its targeted levels, leading to higher housing costs and tighter consumer spending, including on food.
Woolworths posted total group sales of A$18 billion for the September quarter, compared with A$17.22 billion a year ago, beating a Visible Alpha consensus estimate of A$17.25 billion.
($1 = 1.5246 Australian dollars)
(Reporting by Byron Kaye in Sydney and Echha Jain and Ayushman Ojha in Bengaluru; Editing by Shailesh Kuber and Jamie Freed)
