Coles Group reported 2.5% sales growth and 10.2% EBIT growth in 1H26. The key driver of earnings was higher gross profit margins, which should persist in 2H26e, but then fade in future years. Cost savings and productivity benefits from its supply chain investment are also boosting profit margins. Coles sales trends have slowed highlighting the Woolworths DC strike benefit was transitory. However, its growth still outstripped Woolworths on a two-year basis. Coles has de-rated over the past month and its sales momentum is likely to converge with Woolworths over the next 3-6 months.

Metcash reported a 2% drop in EBIT for 1H26. The company’s sales trends are likely to soften a little from here, particularly as it laps Woolworths DC strikes and the Black Friday boost to Total Tools dissipates. The swing factor for Metcash is its corporate hardware stores that need a meaningful upswing in the residential construction cycle. Profit margins are depressed and should recover. The combination of optionality around hardware upside, contract wins in convenience and a good dividend yield give us reason to be positive.

Coles Group reported 1Q26 sales growth of 3.9% and an impressive 4.6% comparable sales growth in its Supermarkets. While the result is strong, the momentum is likely to slow as its larger rival Woolworths starts to improve its execution. Coles also faces a 2Q26e hurdle from DC strike benefits in 2Q25 and a diminishing contribution from new stores. We expect Liquor EBIT to decline again in FY26e.

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.

Upcoming quarterly sales for Coles, Woolworths and Endeavour Group will show a continuation of recent themes. Coles Supermarkets winning, receding inflation and weak liquor volumes. We forecast 1Q26e comp sales of 4.2% for Coles and 1.6% for Woolworths. This gap is approaching a level where Coles could also win 2Q26e, an outcome that would intensify the scrutiny on Woolworths Board and management. We forecast Coles Liquor comps at -0.3% and Woolworths at -0.6%. Liquor retail is still in the doldrums, but pubs are back in growth suggesting broader liquor consumption concerns are easing.

Metcash’s 18-week AGM trading update highlighted a slowdown in sales. For the first 7 weeks, group sales were up 4.7% and the next 11 weeks, to the end of August 2025, sales dropped 1.2%. The biggest contributors to the slowdown were declining tobacco sales (-34%) and annualising Superior Foods acquisition (now trending at 2.7% growth). Metcash’s underlying results show sales trends slightly lower than industry growth other than liquor. Hardware sales trends remain sluggish, albeit improving over recent months.

Coles reported FY25 EBIT up 7.5% on a 52-week basis. Growth was stronger in Supermarkets, partly offset declines in Liquor and higher overheads. Coles has had a strong start to FY26e sales in Supermarkets, which we largely attribute to market share gains. The combination of better sales, one-off costs from last year rolling off and supply chain savings should support group EBIT growth of 12.5% in FY26e. We expect growth to then step down to 5%-7% in FY27e and beyond.

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 has had a rough FY25 for a range of reasons. However, looking forward, we are more interested in the company’s strategic direction under CEO Amanda Bardwell. We expect more details in coming months that may lead to further “simplification” or cost savings and decisive action on underperforming businesses like Big W, HealthyLife and Marketplus. Woolworths is also likely to double-down on its core proposition as “the fresh food people”. In this report, we assess the extent of any potential strategic shift by Woolworths and the implications for the broader industry. As Woolworths recovers, others will feel the impact.

Woolworths improving 3Q25 sales trends suggest the disruptions from distribution centre strikes and public scrutiny are settling. We expect sales trends to remain near prevailing levels and the differential in growth between Coles and Woolworths will be small. Big W’s losses are accelerating and the retailer’s plans for improvement will be difficult to execute given the competitive backdrop. Losses could grow and an exit or sale of Big W is increasingly likely in our view.