Down 6% in a month, is September a good time to buy Woolworths shares?

The Woolworths Group Ltd (ASX: WOW) share price has been falling in recent weeks. It’s down 6% over the last month.

How does this compare to the wider ASX share market? Let’s have a look. The S&P/ASX 200 Index (ASX: XJO) has dropped by 1.4% over the same period. That’s a sizeable underperformance in just one month.

Within that time, investors have had a good look at what the supermarket business achieved in FY22 and some early commentary on FY23.

FY22 earnings recap

Woolworths reported that its group sales increased 9.2% compared to FY21. However, the group earnings before interest and tax (EBIT) dropped by 2.7% to $2.69 billion. While the group net profit after tax (NPAT) increased 0.8% to $1.51 billion. The company raised its annual dividend per share by 1.1% to 92 cents per share.

Talking about the result, Woolworths CEO Brad Banducci said:

The extremely challenging operating environment caused by supply chain disruptions, product shortages, team absenteeism and flooding led to an inconsistent customer experience and a financial performance that was below our aspirations for the year. However, I am proud of how our team continued to show great care for our customers and each other and ongoing resilience to deliver a strong Christmas, and materially improved trading momentum in the second half.

Trading and outlook

Investors are often forward-looking, so the Woolworths share price can take into account what management said about early FY23 trading.

Woolworths said that the start of FY23 is “clouded” by the cycling of the COVID lockdowns at the start of FY22 in its Australian food business, which significantly impacted New South Wales, the state with the largest population. Total sales in the first eight weeks of FY23 were down 0.5% compared to FY22.

Staff “absenteeism” and supply chain disruptions continued to be above pre-COVID levels, though have improved.

Woolworths also said that inflation is beginning to impact all aspects of the customer shopping experience and behaviour.

Operating conditions in the New Zealand food division are “challenging”. However, Big W total sales have been “strong” in the first eight weeks of FY23, increasing by just under 30% as customers are able to get out and about more freely compared to 12 months ago. It said the discretionary retail spend remains “uncertain”, though Big W’s offering is a “strength” in the current environment.

Woolworths concluded:

In summary, we expect the trading environment to remain volatile and challenging due to endemic COVID disruptions, ongoing supply chain challenges, higher costs across our business and cost-of-living pressures for our customers. However, we are increasingly more agile and purposeful in responding to these challenges and are focused on improving our underlying operating performance across all aspects of our value chain after three years of disruption.

Is the Woolworths share price an opportunity?

Tony Locantro from Alto Capital doesn’t think so. On The Bull’s buy, hold, sell share tips, Locantro recommended that Woolworths shares are a sell:

While cost pressures have eased, we’re concerned about the impact from broad cost of living increases on its customers moving forward.

He’s not the only one with a negative view. The broker Credit Suisse currently rates Woolworths as underperform with a price target of just $31.37. That implies a possible fall of more than 10%. The broker thinks the valuation is expensive compared to the rest of the sector, and the Australian supermarkets segment is seeing high-cost growth.

The post Down 6% in a month, is September a good time to buy Woolworths shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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