Woolworths (ASX:WOW) Shares Catch Up As Margin Recovery Gains Pace

The market came into Woolworths Group’s results already leaning positive, with the stock up about 15% over three months and finishing today at A$40.18. Yet the real story sits in the profit engine rather than the share price ticker. Group net profit after tax before significant items reached A$1.599b and earnings before interest and tax before significant items rose to A$3.1b, supported by a higher group EBIT margin.

For investors, today’s move feels less like a sudden mood swing and more like a recognition that Woolworths’ profit recovery is starting to catch up with the optimism already priced in.

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FY 2026 Earnings Summary

• Revenue FY 2026 vs FY 2025 (group sales): A$71.5b vs A$69.0b (approximately +3.6%)
• Net Income FY 2026 vs FY 2025 (NPAT before significant items): A$1.599b vs A$1.386b (+15.4%)
• Basic EPS FY 2026 vs FY 2025 (trailing 12 months): A$0.932 vs A$0.789 (+18.1%)
• EBIT Margin FY 2026 vs FY 2025 (group EBIT margin): 4.3% vs 4.0% (improvement of 35 basis points)

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Woolworths bullish story passes key profit tests

Bulls argue Woolworths is shifting from repair to profitable, cash backed growth as cost out, digital and supply chain investments begin to pay off. The latest result gives that view some concrete wins. Group EBIT before significant items rose to A$3.1b with margin moving to 4.3%, while return on funds employed lifted to 16.4%. That lines up with the turnaround and cost reduction narrative that has been building since June. Australian Food is doing the heavy lifting. Sales grew 4.6% with EBIT up 8.5%, helped by A$400m of above store savings and lower CODB as a share of sales, even as gross margin eased slightly from price investment. WooliesX and complementary services delivered about one third of group EBIT growth, with WooliesX EBIT up 70%. That directly supports the claim that digital, media and loyalty are becoming a meaningful second engine of earnings.

Bear case on margins, capex and ESG only partly eased

Bears worry that wage inflation, price regulation, high capex and ESG risk will cap Woolworths’ margin recovery and strain cash. The earnings print does not fully settle those concerns. Group EBIT margin improved 35bp and Australian Food CODB fell as a share of sales, which runs against fears of immediate margin compression. BIG W moving back into a A$64m EBIT profit also reduces one drag that critics highlighted. However, capex guidance of A$1.9b to A$2.0b for FY27, on top of A$1.84b in FY26, keeps the investment load heavy while the net debt to EBITDA ratio sits at 2.5x. New price gouging laws with penalties linked to turnover sit in the background as Woolworths leans into low price positioning and promotional campaigns. Recent scrutiny of grocery labelling and supply chain transparency keeps an ESG overhang alive for the sector.

Access the Woolworths Group analyst estimates for Woolworths Group to see where the consensus models start to diverge on margins, cash generation and the next potential inflection point in the years after this result.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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