Tighter consumer spending, last year’s interest rate hikes, the strong Australian dollar and the unseasonably poor weather in Australia were the main factors hurting sales during the 27 weeks up to 2 January 2011.

As a result, Woolworths, which also owns discount retailer Big W and electronics chain Dick Smith, has downgraded its full-year 2011 net profit growth guidance to a range of 5 to 8 per cent from a range of 8 to 11 per cent despite seeing a sales increase in its first half year results.

CEO and managing director Michael Luscombe said its half year sales, which increased 4 per cent to $28.3 billion is a “sound result that has been delivered in a period of extraordinary and challenging conditions across the retail sector in both Australia and New Zealand”.

“We are still hurdling our strong results in a very challenging climate,” he said.

“The flip side is that with the low level of inflation and a very competitive market, consumers are benefitting from low prices. During the half we served an additional 18.5 million customers in our retail outlets, an increase of 2.6 per cent.”

Its core supermarket divisions saw sales for the half year increase by 3.5 per cent to $18.8 billion with price reduction assisting in ensuring the company maintained its market share in fresh and liquor category.

Likewise, positive results were seen in consumer electronics, which grew 6.2 per cent during the half and 8 per cent for the second quarter.

However, the impact of colder and wetter weather conditions and price deflation in home entertainment and apparel negatively impacted on Big W’s earning, declining 2.8 per cent during the half and 2.9 per cent for the second quarter.

 “Good progress” is also being made on Woolworth’s online sales, which increased by 75 per cent for the first half, the Luscombe said.