Woolworths has reported its first half profit could plunge by up to 35 per cent after first quarter food and liquor sales rose by just 0.4 per cent to $11.1 billion.

The forecast of group net profit after tax of $900 million to $1.0 billion for first half of FY16 is 28 to 35 per cent lower than H1’15 before significant items.

“At our FY15 results announcement in August, we advised that FY16 would bear the impact of our significant investment in price, service and customer experience resulting in lower margins in Australian supermarkets,” said Woolworths CEO, Grant O’Brien.

The announcement of $15.7 billion first quarter FY16 sales represents a decrease of 2.5 per cent on the previous year. Excluding petrol, which was impacted by changes to the Woolworths-Caltex alliance and declining fuel prices, sales had an increase of 0.8 per cent.

General merchandise sales were $974 million, a decrease of 7.9 per cent. Comparable sales declined by 8.1 per cent for the quarter, an improvement on the first eight weeks where comparable sales declined by 8.9 per cent.

For the quarter, home improvement sales increased 20.3 per cent on the previous year, reaching $568 million. Masters sales were $294 million, up 23.5 per cent, helped by new store openings and refits.

Chairman, Gordon Cairns, said the impact of previously announced investments would lower margins at its supermarkets and drag down first half net profit.

“The Board and management are focused on making the best long-term decisions across all businesses. There will be short term consequences, but we are confident that the decisions we are taking are necessary to realise the immense potential of the group for our shareholders,” said Cairns.

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