Woolworths vs Coles: Which Supermarket Stock Wins This Reporting Season?

Woolworths vs Coles: Margin pressure meets reporting season

Woolworths Group (ASX: WOW) and Coles Group (ASX: COL) are both reporting half-year results this week, and the timing could not be more telling. Woolworths goes first on Wednesday, February 25, followed by Coles on Friday, February 27, giving investors a rare Woolworths vs Coles side-by-side comparison of how Australia’s two supermarket giants are handling the same pressures.

The timing matters because the gap between these two businesses has been widening. Woolworths shares have been drifting lower in recent sessions, closing at A$31.31 on Monday as investors braced for what could be another underwhelming result. Coles, on the other hand, has been quietly gaining market share and delivering stronger sales growth. With both companies facing ACCC court proceedings over alleged misleading discount practices and a new price gouging ban kicking in from July, the big question for investors is straightforward: which stock is better positioned heading into the second half?

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Woolworths Faces Margin Headwinds as Discounting Bites

Woolworths heads into Wednesday’s result under real pressure. Last financial year was tough, with profits falling 17% and the final dividend cut by more than a fifth. CEO Amanda Bardwell has described FY26 as “transitional,” which is rarely reassuring language for shareholders.

The core problem is that Woolworths has been spending heavily to cut prices on hundreds of products, trying to win back customers lost to Coles and Aldi. That strategy makes sense long term, but it squeezes margins in the short term. Macquarie expects only about 6% earnings growth for the half, and we believe even that modest target could be at risk if discounting has bitten harder than expected.

At current levels, Woolworths trades on a forward P/E of around 26 times with a dividend yield of roughly 2.6%. That is not cheap for a business still trying to stabilise its earnings. In our view, Wednesday’s result needs to show that the pricing investments are actually driving customer volumes, not just eating into profits. Without that evidence, the shares could have further to fall.

Coles Quietly Building Momentum on Cost Discipline

Coles tells a very different story. While Woolworths was losing ground last year, Coles grew its EBITDA by 11% and steadily improved its profit margins. In the first quarter of FY26, Coles’ sales growth of 3.9% comfortably outpaced Woolworths’ at 2.7%, suggesting it has held onto the customers it picked up during Woolworths’ distribution centre strikes in late 2024.

Macquarie is forecasting roughly 12% earnings growth for Coles this half, double what it expects from Woolworths. That kind of execution gap is hard to ignore. Coles has also been more disciplined on costs, with supply chain investments starting to pay off in the form of better efficiency rather than just higher spending.

What makes the comparison more interesting is the valuation. Coles trades on a forward P/E of around 23 times, meaningfully cheaper than Woolworths despite delivering stronger growth. We believe that the discount is not justified, given how well Coles has been operating.

The Investor’s Takeaway: Woolworths vs Coles- Which Supermarket Stock Wins?

For income investors, Coles looks the stronger pick. Its dividend yield of roughly 3.2% beats Woolworths’ at 2.6%, and Coles has lifted its annual payout every year since 2019 while Woolworths cut its last dividend.

For value-focused investors, the picture is similar. Coles offers better earnings growth at a lower price, which is a combination that rarely lasts.
Both stocks face the same regulatory risks from the ACCC case and the incoming price gouging rules, so that is largely a wash. The real difference is execution, and Coles is winning there right now.

That said, keep a close eye on Wednesday’s Woolworths result. If Bardwell can show early signs that the turnaround is gaining traction, it could change the picture quickly. Woolworths’ larger scale gives it more room to benefit once momentum shifts. But until we see that evidence, we believe Coles offers the better risk-reward heading into the second half of FY26.