Australia's Woolworths says inflation its main concern as Q3 sales jump

People walk past a Woolworths supermarket following the easing of restrictions implemented to curb the spread of the coronavirus disease (COVID-19) in Sydney, Australia, June 16, 2020. REUTERS/Loren Elliott/File Photo
  • Q3 sales up about 10%; Australian Food sales up 5.4%
  • Sees impact to New Zealand supermarket chain earnings in H2
  • Says store stock service levels below normal levels

May 3 (Reuters) - Australia's largest supermarket chain Woolworths Group Ltd (WOW.AX) said on Tuesday that managing the effects of inflation remained its main concern after fuel prices and supply chain blockages contributed to a surge in the value of third-quarter sales.

The Sydney-listed grocer posted a 4.4% jump in food sales for the March quarter to A$11.4 billion ($8.1 billion), bettering rival Coles Group (COL.AX), as Australia's inflation grew at its fastest pace in two decades. That has prompted near-unanimous expectations of a central bank rate rise on Tuesday.

But Woolworths said the quarter was marked by COVID-19 related staff shortages and supply chain disruptions due to heavy flooding on the densely populated east coast. It said trading patterns had stabilised but that it continued to be hampered by rising costs associated with a global shipping glut.

"Managing inflationary pressure continues to be the focus for us," CEO Brad Banducci said on a call with reporters.

Food prices at Woolworths grew 2.7% in the quarter - far less than the 5.1% official inflation rate, and less than the 3.3% at smaller rival Coles - but Banducci said "in the current environment it remains uncertain" if the company could keep its own prices so far below the broader economy. read more

Woolworths shares were up 0.5% in morning trading, against a small decline in the broader market (.AXJO) as analysts welcomed its higher than forecast quarterly sales.

Sales "were well ahead of our expectations", said Jeffries analysts in a note. "Inflation accelerated (but) there are no signs of changing consumer behaviour."

On the media call, Banducci said Woolworths had not yet seen a pattern of "down-trading" - when shoppers buy cheaper alternatives - to withstand inflation, but expected a shift from fresh to frozen vegetables and from red meat to pork and chicken.

Including its department store chain Big W, Woolworths said overall sales grew 9.7% to A$15.1 billion in the quarter. The company did not give any profit forecasts.

($1 = 1.4152 Australian dollars)

Reporting by Sameer Manekar and Harshita Swaminathan in Bengaluru; Editing by Shailesh Kuber & Shri Navaratnam

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