Woolworths reported FY23 sales up 6% and EBIT up 16% and the result  was characterised by a return to more normal trading patterns. EBIT was up 3% excluding the impact of an unwind of COVID-19 costs in the prior year. The Woolworths Food division had a strong improvement in margins, which bodes well for FY24e and its investments in adjacencies is supporting higher margins than major peer Coles. We expect elevated capex to continue over the next two years given supply chain investments, which should deliver a return.

Woolworths reported a strong improvement in profit margins in 1H23 driven by its Australian Food segment. COVID-19 costs have unwound and cost efficiency programs are delivering results. We expect further margin gains in 2H23e, albeit at a smaller rate. The challenge for Woolworths is its profit margins will be close to long-term averages by the end of FY23e and EPS growth may step down to single-digits in FY24e and beyond.