Higher in-home consumption and food inflation lifts Woolworths' March quarter sales

Higher in-home consumption and rising food inflation has lifted Woolworths (ASX: WOW) sales by 9.7% to $15.1bn in the March quarter.

Woolworths shares fell -1.5% as the market opened but managed to stabilise shortly after, trading close to breakeven.

The swing in the company's share price perhaps reflects the mostly positive nature of today's business update. Let's breakdown some of the positive and negative takeaways.

The good

Management commentary

Chief executive Brad Banducci said that "Group sales growth for the quarter was strong as a return to COVID-related shopping behaviour in the early part of the quarter."

Encouragingly, there has not yet been a "notable change in customer shopping behaviour," since the return to covid-related behaviour and higher prices.

Covid impacts moderate

"Despite the continued business disruption, direct COVID costs have continued to moderate (0.4% of sales in Q3) as we carefully look to reduce costs in areas where no longer required," said Banducci.

Source: Woolworths third quarter sales results (2022)

Australian food 

Total Australian Food sales for the quarter rose 5.4% to $11.4bn. While comparable sales growth was 4.4%, well above the 2-year average growth of 1.0% and 3-year average growth of 4.1%.

Average prices increased 2.7%, which might come as no surprise given a 5.1% consumer price index reading for the March quarter.

Interestingly, Woolworths observed a -4.8% decline in comparable transactions but a 4.3% increase in items per basket - meaning customers were shopping less frequently but with larger baskets.

The bad

New Zealand headwinds

The New Zealand Food business experienced a difficult operating and trading environment due to supply chain disruptions and global shipping challenges.

Total sales for the quarter were up 3.8% compared to last year, mainly driven by higher prices. Woolworths expects the New Zealand business to take a NZ$120-140m hit as a result of higher operating costs.

For context, the New Zealand Food business contributed 15.4% to Group earnings in the first-half of FY22. Its underperformance could act as a slight pinch to overall performance. 

Big W falling short

Big W sales fell -3.5% to $989m as the business cycles through elevated growth from last year.

Trading was impacted in the beginning of the quarter due to the rise in omicron cases. Sales momentum improved in February and March.

Woolworths 12-month price chart