Woolworths has issued a profit warning, revising its earnings forecast for the first half of the 2025 financial year.

The grocery giant now expects first-half earnings to be between $1.48 billion and $1.53 billion, a decline from $1.595 billion in the same period last year.

This forecast indicates a potential decrease of up to $115 million in supermarket profits compared to the previous year.

Woolworths, Australia's largest retailer, has noted that consumers are increasingly facing financial difficulties and are actively seeking discounts.

In response to competitive pressures and political scrutiny, Woolworths has lowered prices, resulting in a 0.3% decrease in average food prices from July to September 2024.

While sales volumes have risen, the company's profitability is under pressure due to lower margins driven by increased discounts and a shift toward lower-margin online sales.

E-commerce sales have shown significant growth, increasing by 21.1% to $2.4 billion, reflecting changing consumer shopping habits.

Newly appointed CEO Amanda Barwell, who has been in her role for just seven weeks, faces challenges from political scrutiny and a shift in consumer behavior towards price sensitivity.

Barwell is tasked with rebuilding customer trust amid a cost-of-living crisis, as political parties criticize supermarkets ahead of the upcoming federal election.

Compounding these challenges, the Australian Competition and Consumer Commission (ACCC) has accused Woolworths and Coles of misleading customers with false discounts.

Following the profit warning, Woolworths' share price dropped nearly 6% to $30.96 in morning trade, marking a 15% decline since the end of August 2024.

The combination of competitive pricing and strong e-commerce growth has resulted in a sales mix that negatively impacts earnings.