Australia | 11:47 AM
Woolworths management has made considerable headway in improving its offering to consumers, as reflected in a robust 1Q27 result, but analysts are questioning whether the momentum can be sustained.
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Australian Food sales strengthen as Woolworths sharpens its value offering
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Tougher sales comparisons and rising costs threaten earnings momentum
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Analysts question Woolworths' valuation despite improving sales
By Danielle Ecuyer
Australian food sales the growth engine
“Sales growth in the early part of the quarter benefitted from the successful Disney Ooshies collectibles campaign, but growth remained strong throughout the quarter.”
As highlighted by Woolworths Group ((WOW)) CEO Amanda Bardwell, the “Fresh Food People” had a robust 1Q27 result, with sales growth of 4.7% y/y largely attributable to Australian Food.
For Morgans, the result was “solid”, beating its own forecast of 4% and consensus at 4.4% growth.
Australian Food total sales grew 6.9% y/y, with like-for-like sales up 6.1% y/y, a result that exceeded consensus' 5.7%.
Citi was the sole daily monitored broker to consider the result a "miss", against a very upbeat forecast of 7.1% growth.
For UBS, the like-for-like growth reflected improving execution and competitive pricing, albeit sales momentum started to moderate post the Ooshies promotion.
After a period of volatile performance, Macquarie emphasises domestic food momentum has improved due to management's focus on value. Notably, the rate of growth has continued into October, which is considered positive given several high-profile retailers, such as Bunnings ((WES)), have noted a slowdown in sales over the month.
Macquarie is upbeat about growth evident across both physical stores, up 4.4% y/y, and e-commerce, up 20.2% y/y. Morgans noted ‘On Demand’ continues to underpin e-commerce growth, with 48% of delivery orders now filled within two hours, up from around 43% in the same period last year.
Digging a little deeper into the ‘value’ proposition, the ‘Lower Shelf Price’ program has been key to the strategy, now including more than 1,000 products , Macquarie points out.
There have also been benefits from Everyday Rewards, with a “record boosting of Rewards offers”, as well as renewed strength in private label/fresh, with growth of around 8%–8.5%.
The slowdown post-Ooshies sees 1Q27 growth of 6.9% compared to the first eight weeks of 7.6%. UBS highlights this implies weeks 9–14 grew by 5.9%.
Woolworths-defined food inflation was -0.7% ex tobacco, which underscores the price reduction and expansion of the Lower Shelf Price promotion program.
The easy gains are in
Looking ahead, UBS believes Woolworths can continue to improve underlying sales growth, despite tougher prior-year comparisons, supported by robust momentum, particularly industry feedback of better in-store execution relative to Coles Group ((COL)) and supplier negotiations helping to maintain low prices.
Comparatively, Macquarie stresses most of the 1Q27 performance has been achieved off a relatively low base, with 1Q26 comps growth of 1.6%.
Contrary to UBS, this analyst believes the comps will become more challenging, with Woolworths cycling growth of around 4.4%–5.3% for 2Q26–4Q26, making sales growth for the balance of FY27 harder to generate.
Equally, some of the tailwinds from adjacent businesses are easing, for now, including Cartology (retail media and advertising business), where revenue was flat y/y.
Citi also believes the comps will be more challenging against 2Q26.
Turning to NZ results, Citi believes the NZ business has lost market share to Foodstuffs, where a successful steak knife campaign has been implemented. Sales growth for 1Q27 came in at 2.9%, inferring sales were only up around 0.8% since the August update (up 4.2%).
Morgan Stanley pointed to same-store sales growth of 2.6% versus 1H27 consensus estimates of 3.2% growth.
Big W sales were down -0.7% y/y and slightly weaker than the first eight weeks of trading, while Petstock sales rose 6.1% y/y, with nine net new Petstock stores opened over the period.
Big W’s same-store sales declined by -1.3% compared to 1H27 consensus forecasts of -0.4%.
As explained by Morgans, the results reflect a more difficult retail environment and ongoing cost-of-living pressures.
The likelihood of more interest rate rises, at least one at the RBA’s November meeting, implies operating conditions are likely to remain challenging for the remainder of FY27.
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