Woolworths' strong food sales suggest price pressures are increasing.

Australia's Woolworths Group Ltd warned on Wednesday that the current consumer environment is challenging, but noted that food sales were resilient in the first two months of this fiscal year, driving a significant increase in its share price.

The retail giant's stock rose 4.8% in morning trading to AU$37.94, outperforming the benchmark index's gain of 0.5%.

Woolworths, with food sales as its largest revenue source, saw a 5% increase in food sales this fiscal year as inflation trends upward.

Woolworths' food retail sales grew by about 6.5% at the start of this fiscal year, with strong sales momentum keeping price pressures at low levels.

CEO Brad Banducci stated that for the fiscal year 2024, food inflation in Australia and New Zealand is expected to slow down, although it may still remain high in some packaging categories.

The company reported an annual net profit after tax of AU$1.72 billion (about US$1.11 billion) before considering significant items, up from last year's AU$1.51 billion. Jefferies had forecast a net profit of AU$1.69 billion. The company announced a final per-share dividend of 58 Australian cents, up from last year's 53 cents.

Citi analysts said that given Coles' weak performance yesterday, this outcome might be well received by the market. Australia's Coles reported on Tuesday that its annual profit from ongoing operations had slightly declined and missed analysts' expectations.