Woolworths reported 1Q26 sales growth of 2.7% overall and 1.6% comparable sales growth in its Australian Food segment. The weak sales trend has led Woolworths to increase its promotions, inventory and staffing investment to help stabilise its market share. Sales trends are likely to improve but it will dent profit margins. We forecast Australian Food EBIT growth of 5% for FY26e at the low end of the company’s guidance range. Woolworths’ valuation is appealing but its sales and margin recovery will be gradual and is not without risk.

Woolworths reported FY25 EBIT down 15%. While it was a rough year, the more concerning issue is that its rebound in FY26e has been tempered by guidance. The earnings recovery will be impacted by ongoing investment in its supply chain transformation and simplification. Woolworths sales trends are likely to accelerate beyond 1Q26e as price investment and execution improve and management disruptions settle down. We lower our EPS by 7.9% in FY26e and 9.6% in FY27e given higher one-off costs.

Woolworths reported FY24 EBIT of $3,223 million, up 3% on a reported basis, or 1.1% adjusted for the extra week. Second-half EBIT fell by 1.3%. While Australian Food EBIT was decent, New Zealand Food and Big W had very weak results. Online sales are accelerating for Woolworths, but the overall benefit to earnings seems limited given supermarket store profits declined in 2H24. Woolworths also provided guidance on capex at $2.0-$2.2 billion for FY25e.