Woolworths Sales Exceed Expectations as Inflation and Fuel Costs Weigh on Outlook

Woolworths Group has reported a 4.5% increase in total group sales for the third quarter of the 2026 financial year, reaching A$18.10 billion. The results, covering the 13-week period ended April 5, 2026, surpassed the Visible Alpha market consensus of A$17.98 billion. However, the robust top-line performance was overshadowed by a cautious earnings outlook, which triggered a sharp decline in the company’s share price.

Following the announcement, Woolworths shares fell by as much as 9.8% on the ASX. The market reaction appears driven by management’s warnings regarding increasing operational uncertainty and a tempering of expectations for full-year earnings growth in the Australian Food segment.

Australian Food Drives Growth

The primary engine for the group’s performance was its core Australian Food business, which saw sales rise 5.9% year-on-year to A$13.8 billion. When excluding tobacco sales—a declining category across the industry—the growth in Australian Food Retail was even more pronounced at 7.3%.

Consumer behaviour continues to shift toward digital channels, with Group eCommerce sales surging by 20.2% to A$2.7 billion. In the Australian Food division specifically, eCommerce now accounts for 16.6% of total sales, reflecting the success of Woolworths’ ongoing investments in last-mile delivery and digital convenience. Analysts suggest that despite broader cost-of-living pressures, Australian households are prioritising essential grocery spending, though they are increasingly seeking value through digital platforms and loyalty programs.

Trans-Tasman Divergence

The results highlighted a stark contrast between the Australian and New Zealand retail environments. While the Australian business saw significant growth, the New Zealand Food division faced a more challenging landscape.

In local currency (NZD) terms, New Zealand Food sales grew by a modest 1.4%. However, when converted to Australian dollars for reporting purposes, the division's sales declined by 5.2% to A$1.81 billion. This discrepancy underscores the impact of currency fluctuations and a more subdued economic environment in New Zealand, where competitive pressures and high interest rates have constrained consumer discretionary spending more severely than across the Tasman.

Rising Costs and Geopolitical Headwinds

Despite the sales beat, the focus of the investment community remained on the group’s revised earnings guidance. Woolworths cautioned that rising fuel costs and broader inflationary pressures are expected to persist throughout the 2026 calendar year. Much of this pressure is attributed to ongoing geopolitical tensions, particularly the conflict in the Middle East, which has disrupted global supply chains and increased energy prices.

Consequently, Woolworths has tempered its outlook for Australian Food earnings before interest and tax (EBIT). The company now expects EBIT growth for the full year to land in the mid-to-high single-digit range, a notable shift from previous expectations that it might reach the upper end of that bracket. This revision suggests that while revenue is growing, the cost of doing business—from logistics to electricity—is eroding profit margins.

Price Freezes and Consumer Support

In an effort to maintain market share and support customers facing persistent inflation, Woolworths announced it would implement a three-month price freeze on 300 household staples starting May 1, 2026. This initiative follows a broader trend among major Australasian retailers attempting to balance their own rising operational costs with the need to provide relief to price-sensitive shoppers.