Options traders and short sellers are betting that Woolworths will end up the loser in a price war among Australia’s largest supermarkets.
Short interest in Woolworths is near the highest on record, equaling 6.8 per cent of outstanding stock after more than doubling this year.
Equity derivatives that pay out if the shares decline are the most expensive since 2012. The shares slumped 17 per cent in the past 12 months.
Woolworths, the biggest supermarket chain in Australia which made about $32 billion in food and liquor sales last fiscal year, is reducing prices to fend off Wesfarmers Coles and German discounter Aldi. Chief executive officer Grant O’Brien, who has pledged to restore the double-digit earnings growth that characterised the company for more than a decade, last month unveiled a profit-forecast cut that sent the stock down by the most since 2008.
"Woolworths is falling short of lofty expectations and being punished,” said Crispin Murray, Sydney-based head of equities at BT Investment Management, which manages about $55 billion. "Woolworths is facing a number of structural pressures that will lead it to underperform."
Analysts expect retaliation from Coles and Aldi to price cuts, leading to weaker sales growth and declining profitability across the supermarket industry. Staples are getting cheaper, with Woolworths lowering prices of bread, milk and toilet tissue.
Bloomberg News, edited by ESM