Woolworths will funnel more than $500 million into improving sales as it lags further behind supermarket rival Coles.
The company's supermarkets division reported a disappointing 3.4 per cent increase in sales for the half year, markedly weaker than Coles' sales growth of 5.3 per cent.
Woolworths has downgraded its full year profit guidance and its director of supermarkets and petrol, Tjeerd Jegen, has resigned.
Chief executive Grant O'Brien says the profit forecast has been downgraded so it can invest more into reducing its food and grocery prices.
He says short-term profitability is being sacrificed for sustainable long-term growth and about $500 million in cost savings will partly fund supermarket investment.
"All our efforts will be on restoring sales' momentum and continuing to deliver profit growth," he said.
"In the short-term, our focus is on investment in cheaper prices and better service to customers."
He said there's a perception among shoppers that Woolworths was dearer than Coles even though that's not true.
Woolworth's revised its full-year net profit growth to a range of 1.8 per cent to 6.6 per cent, compared to its original target of four to seven per cent.
The company suffered a 3.1 per cent slide in its first half profit to $1.28 billion due to costs associated with its efforts to turnaround Big W.
But its underlying net profit of $1.38 billion did beat market expectations.
BIG W's comparable store sales dropped 5.4 per cent and its earnings before interest and tax (EBIT) fell nine per cent on declining consumer confidence and ongoing transformation costs, Woolworths said.
However, Big W is still expected to return to profit in the 2016 financial year.
The company's hardware chain Masters continues to struggle, despite a 28.5 per cent lift in sales.
Masters made a $112.2 million loss, blowing out from the $71.9 million loss from a year ago.
CMC Markets chief equities analyst Ric Spooner said Woolworths' plan to discount food and grocery prices even more had hurt investors' confidence in the supermarket sector.
"The fact that they have to compete on price puts the profit margins of the industry under threat and that's why both Woolworths and Wesfarmers are being sold today," he said.
"The Woolworths' share price was vulnerable to any bad news because it had risen quite a bit on its eBay deal."
In a deal unveiled on Tuesday, eBay customers will be able to pick up their online orders from more than 90 Woolworths and BIG W stores.
Shares in Woolworths fell nearly nine per cent, or $3.03 cents, to $30.92 while Wesfarmers dropped 3.19 per cent, or $1.45, to $43.99 at 1440 AEDT.
WOOLWORTHS PROFIT GROWTH SLIDES
* Half year profit of $1.28b, down 3.1 pct from $1.33b profit in 2013/14
* Revenue of $32.54b, up 1.8 pct from $31.94b
* Fully franked interim dividend of 67 cents, up from 65 cents
AAP peb/gfr
Share
