Australia's Woolworths sales rise as cooling prices stoke demand

By Byron Kaye and Roushni Nair

(Reuters) -Top Australian grocer Woolworths said food sales jumped in the first quarter as value-conscious shoppers seized on cheaper meat, fruit and vegetables, but warned living cost pressures were continuing to make its trading outlook uncertain.

The limited trading update underscores a theme that has dominated Australian retail since inflation prompted 12 interest rate hikes since May 2022, living cost pressure, while demonstrating the residual spending power of an economy that saved A$300 billion ($191 billion) during COVID-19 lockdowns.

Woolworths and rival Coles, which reports quarterly sales on Thursday, together make about two-thirds of Australian grocery sales so their results are widely viewed as indicators of consumer behaviour.

Average Australian shelf prices at Woolworths rose just 2% in the quarter ended Sept. 30, from 5.2% the previous quarter, as benign weather helped the supply of fresh produce, but food sales surged 6.4% to A$13.1 billion as cheaper prices stoked demand, the retailer said.

"Value is the order of the day," said Woolworths CEO Brad Banducci on a media call.

"It's been happening for a while and it's obviously accelerating."

The Sydney-listed company did not give a profit figure and gave no trading guidance except that sales remained broadly in line with the September update and "the trading environment remains uncertain".

Its New Zealand unit, which makes about one-tenth of overall sales, was expected to report lower first-half profit due to competition.

Woolworths shares were 0.6% lower in morning trading, against a 0.3% gain on the broader market, as analysts noted the update was in line with forecasts but noted the New Zealand unit may drag on group profit.

"Sales trends were largely consistent with our expectations but ... NZ commentary will likely lead to low single-digit consensus earnings downgrades," said Jefferies analysts in a research note.

Total sales, which include department store chain Big W, rose 5.3%, Woolworths said. It said average prices for fruit and vegetables dipped 12% with berries, lettuce, cucumbers, capsicum, and tomatoes all declining "materially", the company said.

($1 = 1.5723 Australian dollars)

(Reporting by Roushni Nair and Echha Jain in Bengaluru; Editing by Shailesh Kuber and Stephen Coates)