Updated version 1 - Update 1 - Woolworths Australia’s first-quarter sales grow as discounted goods fill cash-strapped shopping carts

Rewrote content in paragraphs 6-7 and 10, added analyst commentary, and improved details throughout the article

Shivangi Lahiri

Reuters, October 27 - Woolworths WOW.AX said on Wednesday that its first quarter sales grew, as budget-conscious Australian consumers snapped up discounted and promotional products; however, the grocer also warned that cost-of-living pressures are weighing on shoppers.

The country's largest supermarket chain reported that, for the 14 weeks ended October 4, group sales rose 4.7% to AUD 19.35 billion (USD 13.60 billion), essentially in line with Visible Alpha's estimate of AUD 19.34 billion.

Since Middle East tensions pushed up fuel and raw material costs, Australia has struggled with inflation, which prompted the Reserve Bank of Australia this year to raise rates several times, also forcing budget-conscious consumers to turn to discounted goods.

Woolworths said that due to the expansion of its “everyday low price” program and price reductions (particularly on everyday essentials), average prices, excluding tobacco, fell by 0.7% in the quarter, marking an eleventh consecutive quarter of declines.

“We recognize that many of our customers are still under significant pressure,” said CEO Amanda Bardwell.

Bell Direct Senior Market Analyst Grady Wulff said: “Cost-of-living pressures are prompting consumers to cut back on non-essential spending, including dining out, and to prioritize essential foods, for example by switching to private-label products.”

“Woolworths is currently able to maintain competitive pricing, but the real test will be in the coming months – whether improvements in sales volume and productivity can continue to offset the cost pressures of inflation.”

Its Australian food segment saw a 6.9% sales increase in the quarter, thanks to a Disney DIS.N Ooshies marketing campaign conducted from mid-July to late August (link).

“As of October, sales growth at Woolworths Food Retail was largely in line with transaction performance in the first quarter after the ‘Ooshies’ campaign concluded,” Bardwell said.

According to Jefferies analysts, this implies an annualized sales growth rate of 6%, well above Visible Alpha's forecast of a 4.6% increase.

Woolworths said that sales growth in its New Zealand food division has slowed since the “Ooshies” promotion ended, reflecting a softer macro environment and intense competition.

As of 23:03 GMT, the company’s share price fell as much as 1.4% to AUD 40.43, before reversing losses to trade up 0.2%.

(1 US dollar = 1.4229 AUD)

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