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Why has the Woolworths (WOW) share price dived?


Before today’s decline, the retailer’s shares had risen 18% over the last 12 months.

Shares in supermarket giant Woolworths (ASX: WOW) were the most traded stocks on the ASX boards in early trading on Tuesday, but also the worst performer by far.

At the time of writing, the stock had tumbled 9.3% to $36.80. Shares in rival Coles (ASX: COL) were also down nearly 4%.

What is behind the slide in the Woolworths (WOW) stock price?

Woolworths on Tuesday said its first-half results will miss market expectations as a combination of rising costs from repeated lockdowns and a shift to normal patterns of trading will slash profitability at its domestic supermarket business.

It expects first-half earnings to fall between 7% and 8% compared to a year ago.

Earnings before interest and tax for its main Australian supermarkets business will be between $1.19 billion and $1.22 billion, lower than analyst forecasts and down from the first half EBIT of $1.33 billion last year.

“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,” CEO Brad Banducci said in a statement to the ASX.

Woolworths said it would count costs of more than $200 million linked directly or indirectly to COVID-19.

It expects direct pandemic-related costs to be around $150 million at its Australian food arm, with the expense split between supply chain issues and ensuring the safety of customers and its team.

In addition, the indirect disruption to stores and distribution centres led to elevated operating costs of $60 million to $70 million in the first half.

Subdued sales

Woolworths said its Australian Food business reported sales growth of 2% during the second quarter of the year, down from first quarter growth of 3.9%.

It said sales had moderated since the easing of lockdowns in New South Wales and Victoria during October, as customers return to more normal shopping habits.

Inclement weather and declining tobacco sales also played a part.

Its BIG W business delivered an improved performance in the second quarter as stores reopened, although sales were still down 3.3% from a year ago.

However, the extended store closures during the first half will result in a slide in earnings for the half year.

The New Zealand Food business was the star performer, with sales growth due to extended lockdowns and higher inflation in the country.

Online sales also continued to grow strongly, increasing by 50% in the 6-month period.

On the positive side, Woolworths has a good in-stock position and positive trading momentum as it heads into the key Christmas trading period.

The group is paying a Christmas Thank You bonus of $35 million to $40 million to recognise the significant efforts of its front line teams across Australia and New Zealand.

“As customer behaviours begin to normalise and COVID-related supply volatility reduces, we expect an improvement in our underlying operating performance," Mr Banducci said.

The group will provide a detailed update for the remainder of FY2022 at its first half results in February.

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