Coles reported 3Q26 sales growth of 3.1%. While 3Q26 sales lagged its rival, Coles Supermarket track-record has been superior to rivals and the market over the past three years. Its Supermarket growth rate is likely to converge with Woolworths over the next nine months in our view. In Liquor, Coles rebranding has not delivered any earnings improvement and former First Choice stores could be shut down in our view. Coles looks to have enough flexibility to manage the fuel price and inflationary pressures near-term. The more important debate will be the ability of the two major supermarkets to ensure ongoing healthy rates of sales growth, which should occur as food inflation accelerates over the next year.

Woolworths 3Q26 sales growth of 4.5% was solid across all segments. Even so, the company has lowered its earnings guidance on higher fuel prices and a decision to absorb cost increases on supermarket essentials over the next three months. It is clear that Woolworths top priority is improving its price perception with shoppers. We expect sales trends to slow as the unwind of strike impacts is bigger than the inflation pick-up over the next six months. We see a decent earnings path for FY27e as Woolworths benefits from further cost savings and simplification.

Coles and Woolworths upcoming sales results may be of passing interest because we expect the emphasis to be on the current trend in relative performance and the outlook for price rises. We forecast Coles Supermarket comparable sales growth of 3.0% and Woolworths Food at 4.3% for 3Q26e. The growth gap in Woolworths favour is narrowing with an elimination of the gap in 4Q26e in our view. We expect limited detail on price rises because negotiations are ongoing with most suppliers. While not likely to be a feature discussed by Woolworths, its range rationalisation program called Customer Offer Reset is ramping up and will be topical throughout 2026. It could provide $100-$210 million in lower cost of goods on our estimates but will alienate some suppliers and therefore may have adverse effects on sales on a 2-3 year horizon.

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.

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.

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.