Woolworths Group Ltd

Income statement: notes and sources

Sources: F26 Annual Report five-year charts (sales, EBIT, NPAT before SI F22–F26); F26 results (F25–F26 detail). FY2022 statutory NPAT included a large non-cash gain on the Endeavour demerger (n/a here). Dividends F22–F24 from prior-year reporting (F22 39c+53c; F23 46c+58c; F24 47c+57c+40c special). FY2024 was a 53-week year.

Margins (%)

Revenue CAGR FY2022–FY2026: 4.1% p.a. (derived: A$60,849m → A$71,539m over four years). EBIT before SI CAGR FY2022–FY2026: 3.7% p.a. (derived).

Commentary. The five-year arc has three phases. (1) F22–F24: post-Endeavour-demerger growth, with EBIT rising from A$2.69bn to A$3.22bn on Covid-era and inflation-supported sales and margin gains (EBIT margin peaked ~4.8% in F23). (2) F25: a sharp reversal — EBIT fell 14.6% to A$2.75bn as Woolworths lost value perception and market share to Coles and Aldi, suffered 17 days of DC industrial action (A$95m EBIT hit), incurred supply-chain dual-running costs (A$111m) and recorded BIG W and MyDeal losses. (3) F26: recovery — EBIT +12.7% to A$3.11bn, but still ~3.7% below the F24 peak (which included a 53rd week). Gross margin is essentially flat (Australian Food −2bps, −20bps ex tobacco); the margin gain came from CODB (−24bps) driven by ~A$400m of above-store savings. The F26 earnings quality is reasonable: excluding the prior-year industrial-action effect and supply-chain implementation costs, EBIT grew 8.7%.

Balance sheet

Half-year total assets at 4 January 2026 were A$34,387m and total liabilities A$29,630m (Appendix 4D). Other creditors/provisions rose A$945m to A$5,835m, primarily the A$710m team-member remediation provision.

Commentary. The balance sheet is dominated by leases (A$11.3bn of lease liabilities vs A$3.75bn of financial net debt). Financial leverage improved in F26 as net debt fell A$362m on positive net cash flow of A$346m. Trade working capital is structurally negative (payables 44.2 days vs inventory 31.3 days), a classic grocer funding advantage, though inventory was deliberately increased by 1.1 days to hedge Middle East-related supply risk. Intangibles fell A$195m (amortisation and MyDeal). Shareholders' equity is thin (A$4.8bn) relative to a A$50bn market cap — a legacy of large buybacks/returns (including the 2021 Endeavour demerger and 2022 off-market buyback) and the F24 impairments.

Cash flow

Commentary. F26 cash generation was strong: cash realisation of 107% and FCF after lease principal of A$1.2bn covered dividends (A$1.1bn) with a small surplus. Capex is moderating (A$2.44bn, −3.7%) as the multi-year supply-chain build (Moorebank, CFCs) completes; H1 operating capex was A$913m (−A$88m). F25 dividends included A$489m for the 40c F24 special dividend; F25 outflows also included A$422m to buy out the 35% PFD minority. No buyback has been run since 2022; the DRP is neutralised through on-market purchases.

Key ratios

Notes: ROFE F22–F24 per F26 Annual Report chart (F24 normalised to exclude 53rd week); chart labels parsed from the PDF and should be cross-checked. ROA and asset turnover for F26 use H1 F26 total assets (A$34,387m) as a proxy — derived. ROIC is not reported; ROFE (EBIT / average funds employed) is the company's equivalent.

Ratio commentary. ROFE at 16.4% has recovered past F23 levels but sits slightly above the normalised F24 15.7% only because funds employed shrank (impairments, lease run-off). The quality of returns differs sharply by segment: Australian Food 29.2%, B2B 12.8%, BIG W 7.0%, W Living 6.0%, NZ 5.2%. Lease-adjusted leverage of ~2.5x EBITDA is consistent with the BBB/Baa2 ratings.

Management guidance (F27)

• Momentum in Australian Food carried into F27 (first eight weeks +7.6%), aided by Disney Ooshies (~1.5–2 pts).

• Customers to remain value-focused; Woolworths committed to limiting cost pass-through.

• Elevated wage growth (4.75% plus junior pay reform).

• Moorebank benefits to materially offset supply-chain implementation costs.

• NZ: subdued conditions; aim for improved financial performance.

• BIG W: challenging conditions; targeted value investments.

• Other LBIT ~A$260–270m.

Consensus growth expectations

Aggregator data (Simply Wall St) implies revenue growth of ~4% p.a. and a profit margin trending toward ~2.7%; the ~A$39 average target implies the market already prices most of the recovery.

Bull case

1. Operating leverage from a completed capex cycle: With Moorebank operational and A$113m of F26 dual-running costs rolling off, Australian Food EBIT can grow faster than sales (it grew 8.5% on 4.6% sales in F26), supporting high-single-digit Group EBIT growth.

2. Profitable eCommerce and services flywheel: eComX DAP margin of 4.1% and still rising, Cartology re-accelerating (+11.3% H2) and agentic AI lowering service costs (60% automated) can lift Group EBIT margin from 4.3% toward the F23 peak of ~4.8%.

3. Turnaround optionality in NZ and BIG W: Lifting NZ ROFE from 5.2% and BIG W from 7.0% toward double digits on ~A$4bn of combined funds employed would add meaningfully to Group returns with limited capital.

Bear case

1. Valuation leaves no margin for error: At ~31.5x underlying P/E and ~10.7x EV/EBITDA, the stock trades above Coles (~28x) and far above global grocers (~13x), while consensus targets sit below the current price.

2. Regulatory and political overhang: An adverse ACCC judgment (266 products), new excessive-pricing laws and continued price-freeze controversies could compress pricing flexibility in a business earning a 5.5% margin.

3. Cost inflation and competitive reinvestment: 4.75% wage growth, fuel-driven freight inflation and Coles' faster eCom growth (+26.4%) may force further price investment, with F26's flat gross margin showing limited buying-side offset.

Catalysts and monitorables (next 12 months)

Analyst verdict

Woolworths Group has executed a credible recovery. After a bruising F25 in which it lost value perception, endured industrial action and booked losses in BIG W and MyDeal, F26 delivered what management promised: all trading segments grew EBIT, Group EBIT rose 12.7% to A$3.1 billion, ROFE recovered 2.7 points to 16.4%, cash realisation reached 107% and the dividend rose 15.5%. The underlying engine — Australian Food, with A$53.9 billion of sales and a 29.2% ROFE — remains one of the highest-quality retail franchises in the developed world, and its eCommerce arm has crossed into genuine profitability (DAP doubled to A$356 million). The supply-chain capex cycle is largely complete, and the Group is a visible early adopter of agentic AI through its Google partnership, which offers a credible path to further productivity.

The investment debate is therefore less about quality than about price and political risk. At A$41.20 the shares trade on ~31.5x underlying earnings and ~10.7x lease-inclusive EBITDA, above the consensus target of ~A$39 and well above Coles and global peers. Earnings are still below the F24 peak, NZ Food and BIG W continue to dilute returns, the ACCC illusory-discount judgment is outstanding, excessive-pricing legislation looms, and wage and fuel inflation will test the Group's promise to absorb costs for customers. The F27 start (+7.6% in Australian Food) is flattered by a one-off collectibles programme.

Our synthesis: Woolworths is a high-quality, defensive compounder whose fundamental recovery is real but now largely priced. We view the risk/reward as balanced — a "Hold / quality at a full price" stance — with upside contingent on evidence that EBIT can grow sustainably ahead of sales through F27 (Moorebank savings, eCom and Cartology margin) and that regulatory outcomes prove manageable. Downside risks centre on an adverse ACCC finding and a renewed price war.

All figures in AUD unless noted.