Dismal Easter egg sales stall recovery at Woolworths

Woolworths' recovery suffered a hiccup yesterday after poor sales of Easter eggs dragged down like-for-like sales at the high street retailer.

Trevor Bish-Jones, who took over as chief executive last year, said the group had botched its handling of promotions during the crucial pre-Easter week, forcing it to slash egg prices in the last couple of days.

The group said underlying sales in its first quarter fell by 0.6 per cent across its retail estate. The "three-for-two" Easter egg offer also hit margins, causing gross margins to be flat during the period. It hopes to improve its margins by 50 basis-points across the full year.

Mr Bish-Jones said: "What became clear, which is the key thing to take forward, is that the customer now expects to buy eggs on promotion. We made a mistake by losing promotional emphasis."

The "blip" cost the group around £5m in lost sales, which Mr Bish-Jones called insignificant against total sales of £3bn. It has identified cost savings to make up for the loss of income over Easter. Its shares fell 7 per cent to 33.75p.

Analysts said the performance in one of the group's core product categories, which is facing tough competition from the supermarket sector, was disappointing. David Jeary at CSFB said: "[It] could well heighten fears on its Christmas trading prospects." Woolworths makes all of its profits in its second half.

Mr Bish-Jones said the group was still on track to hit its targets. "Outside of a poor week of egg sales, the business has moved forward at the level we were expecting as part of the recovery plan." Excluding confectionery sales in the week before Easter, underlying retail sales rose by 0.8 per cent, and the gross margin improved, he said.

The group said underlying sales at its out-of-town Woolworths big W stores had risen by 1.1 per cent during the quarter. Again, analysts were unimpressed, pointing out that the group is counting on the giant stores to drive growth. Alowiba David-West, at Merril Lynch, downgraded the stock to "sell", citing weak pick-and-mix sales and concerns about the entertainment market.