Woolworths reported FY26 sales growth of 4%, EBITDA growth of 7% and EBIT up 13%. The company’s sales momentum remains good and it should continue for the next six months, but then outperformance is likely to fade as Woolworths laps higher promotional activity. We expect a modest pick-up in inflation. Woolworths earnings growth was helped by unusually low depreciation growth. Nevertheless, Woolworths has more margin expansion opportunity over the next three years than Coles. The NZ and Big W segments had better earnings. The path to a 10%+ return on funds is plausible for these businesses but margins would still be low by historical and industry standards.

Coles Group reported FY26 EBIT growth of 10% driven by better gross margins and tight cost control in its Supermarket business. The outlook for margin expansion from here is limited given Supermarket margins are at a decade high and cost inflation will be elevated in the next 12 months. Coles Liquor business may stabilise earnings, but its EBIT margin of less than 2% looks like persisting for some time. Coles will spend more capex on supermarket renewals and automated DCs. This is sensible investment but does mean that free cash flow will be limited.

Woolworths has good sales momentum, which has led to a higher PE ratio. The chances of surprisingly strong sales momentum in Woolworths trading update is high given the success of the Ooshies collectables campaign. We may see sales growth of 7%+. However, such programs have no discernible ongoing benefit to sales. As a result, Woolworths sales trends are peaking and are likely to slow through FY27e.

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.