Woolworths Ltd, Australia’s largest grocer, saw its shares drop 2.5% at the close of Sydney trading yesterday (26 January) as first-half sales growth more than halved from a year ago.

First-half sales for the 27 weeks to 3 January rose 4.2% to reach A$27.20bn (US$24.42bn). The figure slowed from a growth of 8.8% in the previous year.

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Woolworths shares fell 2.5% to A$26.800 at 16.10 AEST yesterday.

CEO and managing director Michael Luscombe hinted that slowing food inflation had weighed on the retailer’s sales.

“Our supermarkets achieved solid volume and market share growth whilst experiencing lower levels of inflation in Australia and New Zealand, and the cycling of the anniversary of the Australian Government stimulus payments.”

Luscombe added: “We are pleased with this result which reflects Woolworths’ clear focus on delivering sustainable growth. Our business remains strong as we continue to deliver real sales growth above inflation in Australia and New Zealand.”

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In the firm’s Australian food and liquor division, sales rose 6.8% to reach A$18.14bn, while sales in its supermarket division increased 4.1% to reach A$23.09bn.

Big W sales edged up 2.3% to A$2.46bn. Growth slowed, however, from a 10% increase in the prior year.

In the second-quarter, Woolworths’ sales rose 4.1% to A$13.84bn in the 13 week period. Sales in Woolworths’ Big W discount department stores fell by 0.3% to A$1.37bn.

Click here for Woolworths’ half-year results and click here for coverage of Woolworths’ conference call.