The Ooshie edge: Woolies outpaces Coles in FY26 but is there any upside for investors?

It's one of the great reporting season showdowns. Twice a year, Australia's supermarket duopoly, Woolworths (ASX: WOW) and Coles Group (ASX: COL), go head-to-head on results.

Last time out it was a resounding win for Woolworths, but the intervening six months has been constructive for both. 

This time around, Woolworths have edged it again, thanks in no small part to Ooshies, which, by the supermarket's own reckoning, added 1-2% of sales growth. 

I spoke to Ausbil's Michael Price on the key takeaways from the two sets of results, why the outlook remains good and whether that has translated to a buying opportunity for investors.

Woolworths FY26 results

• Group sales up 3.6% to $71,539m vs $71,609m ests (in line)
• EBITDA up 6.7% to $6,089m vs $6,206m ests (2% miss)
• Group EBIT (ex-items) up 12.7% to $3,105m vs $3,052m ests (2% beat), with all trading segments delivering growth
• NPAT (ex-items) up 15.4% to $1,599m vs $1,545m ests (3% beat)
• Final dividend up 15.6% to 52 cps fully franked, taking the full year to 97 cps vs 94.8 cps ests (2% beat), up 15.5%
• Australian Food sales up 4.6% with EBIT up 8.5%, though excluding cycled industrial action and supply chain costs the underlying figures were 4.1% and 4.8%
• New Zealand Food EBIT rose 8.8% for the year in NZD but fell 7.7% in H2, with gross margin down on customer investment and higher stock loss tied to the new store operating model rollout
• W Living swung to $116m EBIT from a $31m loss, with BIG W returning to a $64m profit and Petstock EBIT up 33.5%

Coles FY26 results

• Group sales revenue up 2.8% to $45.6bn vs $45.6bn ests (in line)
• Group EBIT (ex-items) up 9.9% to about $2,321m vs $2,316m ests (in line)

• NPAT (ex-items) up 13.7% to $1,255m vs $1,243m ests (1% beat)

• Significant items of $235m pre-tax, or $165m after tax, from the September 2025 Federal Court judgment in the Fair Work Ombudsman proceedings
• Total dividends up 13.0% to 78 cps vs 78.5 cps ests (in line)
• Supermarkets sales revenue up 3.7% to $41.5bn, or up 5.1% excluding tobacco
• Supermarkets EBIT up 12.2% vs. 11.0% ests
• Supermarkets gross margin up 37bps, helped by the mix shift away from tobacco and Coles 360 retail media
• Supermarkets price inflation of 1.5% for the year, easing to 1.0% in Q4

Do you hold WOW and COL and what is your rating for them?

For both of them, our rating is underweight.

We don't see anything particularly wrong with the earnings or anything wrong with the outlook, but we do think it's fully priced, and on the back of that, we really prefer other companies, so that leads to an underweight rating. 

The funds at Ausbil have been underweight, including my Ausbil dividend income fund (ASX: DIVI). However, one of the features of DIVI is when we do think the risks are low, and has an upcoming dividend, we increase the rate around the dividend paying period. 

And so, post-result, we actually have increased the weight in both companies. So I do hold them but only at a neutral position because of others preferred in the longer term.

What matters from the results?

The first thing that matters is profit, and profit is simply volume times margin. So volumes and margins are going to be the two most important things with most results, but very much so for the supermarkets. 

The first thing everyone had their eye on were the volumes for both companies. It was interesting - expectations were quite low for Coles because of Ooshies. It's amazing, everyone's been collecting Ooshies. I don't know if you know anyone who's been collecting Ooshies, but half the floor here has and that makes a difference. 

Interestingly, it hadn't been symmetrical - people didn't have huge expectations of Woolworths. But the numbers came out quite well - both of them with strong growth, Woolworths actually quite spectacular growth at around 7.5%. 

Even they called out Ooshies as adding 1.5-2%, which is significant but it also leaves around 5% or slightly above that in other growth, which was which was a good number for Woolworths. 

Coles was about 1% less than that on an underlying basis and certainly it did not disappoint in any way. So a good result for both companies in terms of underlying growth in volumes, which is important. 

The second thing is margins, and basically margins are resilient. Both companies are being sensible on price - food inflation and general inflation are not bad for pricing for the supermarkets. 

Costs can always be an issue - and certainly they have been a pressure - but costs have been managed well, so the margins have been resilient and the outlook for margins is reasonable as well. 

The third thing is the outlook for costs and capex, and they're slightly different across the two companies. 

Woolworths called out wage pressures and cost wage growth and cost pressures, but it does appear to be under control. For Coles, there was a little bit of perhaps a capex blowout, where they're investing more than the market expected. 

But it is expanding the number of stores, improving the stores and some efficiencies within the business, and they're able to reassure investors that there's really a two-year program, and at the end of it, they could definitely had some clear line of sight to improve margins on the back of it. 

How do those outcomes affect the outlook?

These companies do benefit from food inflation - that seems to be continuing, and we expect that to be ongoing. They both called out a trade-down from eating out to eating in - cost of living pressures are very real, so that's been helpful and they see that as being helpful going forward. That should benefit both supermarkets as people spend more money on food.

They're both seeing the efficiencies coming through from previous capex and spend, which seems to be in place and because of that, the outlook is pretty solid. 

Dividends plus earnings growth, we would expect to be single digits total - very high single digits - but still single digits. And given the current multiples, we certainly don't see much scope for an increase in the valuation, so that does lead to a sub-10% total return. Within the market we can almost think we can find better opportunities elsewhere.

What should investors be paying attention to as the story unfolds?

What you should be paying attention to are food price inflation risks and the cost blowout. The other thing to watch it - and I think the phrase they use is - investing price. 

The Australian market is quite a narrow market, and when we're talking telcos, banks, supermarkets, airlines, if the competitors behave themselves, then you know the whole sector can do reasonably well. But if one of them, for some reason, decides to invest in price, as they say, then that's something you've got to got to keep an eye on as an investor.

What could you be wrong about?

We do think there's a fairly benign environment for margins, so there is always the risk that costs blow out or there is an investment in price, and prices come down. So, there's a risk there. 

The other one would be really from a macro point of view, looking top down. We do think being underweight for supermarkets is right because other sectors are preferred. We don't see a great deal of risk in terms of multiples blowing out, or valuations going up and the price going up significantly. 

But there is the potential that they outperform if we're wrong, and the market falls substantially. If cyclical stocks do particularly poorly relatively, whether that comes from interest rate hikes, people getting scared of cyclicals or, interestingly almost the opposite, if the economy slows dramatically. So, if there is a significant slowdown, that's not good for the cyclical companies, despite the fact there's going to be a cut in interest rates in those environments. 

That applies at a global level as well, given the amount of offshore exposure in the Australian market. So if there is a significant slowdown domestically or internationally and cyclical stocks suffer, then the supermarkets will be relative beneficiaries, which is not what we're expecting.