Woolworths Group Limited

Thank you for standing by and welcome to the Woolworths Group F26 Q3 Sales Announcement Analyst Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to Ms. Amanda Bardwell, Managing Director and CEO of Woolworths Group. Please go ahead.

Good morning, everyone. Thank you for joining us today for Woolworths Group's third quarter sales results for the 2026 financial year. I'd like to acknowledge the traditional custodians of the land on which we meet today, Dharung Country, and pay my respects to elders past, present and emerging. Joining me this morning are Stephen Harrison, our Chief Financial Officer, Annette Carantone, Managing Director of Woolworths Retail, Sally Copeland, Managing Director of Woolworths New Zealand Amitabh Maul, Managing Director of Group EcomX and Dan Haig, Managing Director of BW Before I turn to our performance in the quarter, I'd like to recognise the uncertainty that the conflict in the Middle East is creating for our customers, suppliers and teams. While the impact on the Group to date has been limited, higher fuel costs and secondary effects are likely to have an increasing impact on inflation as we move through the calendar year. However, I am confident that we are well positioned to navigate the current environment. Our primary focus since March has been to take the necessary steps across the Group to minimise the impact on our customers, while also recognising the genuine cost pressures being felt by our suppliers and transport partners. We have mobilised rapidly to respond to this environment and we're engaging with the government as their response plans are developed. We have already implemented a range of measures to support inventory availability and supply chain resilience and are supporting our transport partners through regular fuel price adjustments. For our customers, today we have committed to a price freeze on 300 of our own brand and exclusive brand basket essentials. including chicken, pasta, sausages, nappies, to provide more certainty at the checkout. This price freeze is an addition to the existing lower shelf price program and the thousands of weekly specials that we offer to our customers to provide more value. We have also encouraged use of the existing Woolworths fuel discount at Ampol and EG Ampol sites and are seeing higher redemption rates. Turning now to our quarter three sales results, the group's overall performance in the quarter was strong, driven by Australian food, supported by further progress on our strategic priorities and the quarter. While group customer metrics remain above the prior year as a result of improvements in key metrics like value for money and out of stocks, we have seen a decline compared to quarter two, reflecting a normalisation from the Christmas seasonal peak a rapid reduction in consumer confidence and some disruption during the quarter. Rebuilding trust with customers and ensuring that we continue to provide meaningful value is even more critical in this environment. Now turning to the performance by business. In Australian food, total sales increased by 5.9% with Woolworths food retail sales also increased by 5.9%. Excluding tobacco, Woolworths Food Retail's total sales increased by 7.3%, supported by e-commerce growth of 23.8%. Sales growth in quarter three was largely driven by item growth, with an increase in customer transactions and items per basket compared to the prior year, reflecting investments in value, fresh and convenience that resonated with our customers. growth also benefited from cycling the residual impacts of industrial action in the prior year, which normalised over the course of the quarter, as well as some pantry stocking in March. By category, growth in fresh and grocery food was strong, both growing in the high single digits. In fresh, meat and seafood were highlights, and in grocery food, we saw strong growth in drinks, snacking and health and wellness. Everyday needs growth rates improved compared to the prior year, following action we took to address range and pricing gaps in key categories, as well as providing more value to customers with market-leading promotions. Within everyday needs, Home Essentials showed the strongest improvement, driven by strong promotional plan, particularly in storage and cleaning. During the quarter, we ran the most successful baby event since 2023, which was supported by nationwide relaunch of our Little Ones, Nappies and Wipes. In pet, we introduced almost 80 new Baxter's and Smiton own brand products to our range, supporting solid growth. Billy's Bowl was also launched in Woolworths supermarkets during the quarter as we begin to leverage the strength of our pet stock own brand portfolio. However, growth in everyday needs remained below the other categories and we know we need to do more to improve our competitiveness in this space. Average prices excluding tobacco in quarter three declined 1% driven by deflation in fruit and vegetables due to increased supply in berries and capsicums and deflation in grocery food reflecting lower shelf prices. This was particularly offset by higher meat prices which continued to be impacted by rising livestock costs. Building inflammatory pressures from the conflict in the Middle East do not have a material impact in quarter three. In e-commerce, sales increased 23.8% compared to the prior year. Growth in sub-60 propositions almost doubled compared to the prior year, supported by the continued expansion of Milk Run and our new partnership with DoorDash, with on-demand delivery now available in over 70% of the network. Direct-to-boot now sales more than doubled compared to the prior year, supported by network expansion. Cartology revenue grew 14.4%, driven by several successful promotional events in the quarter, including Easter and the fifth-level cookware continuity program in Woolworths supermarkets. Everyday rewards and services growth was strong, driven by continued growth in rewards and mobile. was the strong member engagement we saw during the quarter following investment in rewards offers to return more value to customers with active members reaching a record of 10.7 million. Campaigns launched in the quarter include points lists, boost your budgets and the Fisla Cookware Continuity Program also helped drive strong engagement. In Australian B2B, sales increased by 4.9%, driven by B2B food, with solid growth in PFD and export meat sales. On an Easter-adjusted basis, PFD sales slowed somewhat in March compared to prior periods, reflecting more caution from PFD's food service customers. B2B supply chain sales were below the prior year due to declining tobacco sales in state independent wholesalers in Tasmania, third-party supply chain sales through PC Plus increased on the prior year, reflecting higher volumes across road and rail freight. In New Zealand, sales increased 1.4% or 2.1% on an Easter-adjusted basis, with a more subdued growth rate in the quarter reflecting lower market growth and a competitive environment, as well as some disruption from the new store operating model. Customer metrics softened in the quarter, reflecting seasonal trends, operational impacts from the rollout of the new store operating model and a decline in consumer confidence. We have seen an improvement in our operating performance over the quarter and are committed to further improvements over the remainder of the year. Pleasingly, the launch of member prices in New Zealand in March has seen an improvement in our value for money customer scores and supported increased member engagement reflected in improved tag rates and increase in active members and higher rewards advocacy. In VW, total sales increased 3.9% or 1.1% on an Easter-adjusted basis. VW's growth transaction values, including VW market, increased by 6.5% with strong marketplace growth. The quality of sales growth in the quarter remained strong reflecting a higher proportion of full price sales as well as a solid Easter trading period. We saw positive momentum continue in clothing benefiting from strong sell through of the summer ranges and early autumn winter trade as well as solid growth in play and home. Every day remains a focus with big price drops launched two weeks ago delivering strong value for customers in the category. Big W e-commerce sales increased by 17.9%, driven by solid 1p growth and strong 3p growth through Big W markets. Pet stock total sales increased by 15.9%, largely driven by the opening of four net new stores over the last 12 months, franchise repurchases and the acquisition of own brand pet food and manufacturing businesses in H2 last year. Comparable sales increased 4%, supported by a value reset, increased marketing and solid own brand and e-commerce growth. Turning now to current trading and outlook. In Australian food, Woolworths food retail sales for March and April to date have increased by 5.4% or 6.5% excluding tobacco, with underlying momentum remaining solid despite some signs of increased customer caution. Reported F26 Australian food EBIT growth is still expected to be in the mid to high single digit range, but no longer at the upper end of the range. This reflects incremental costs associated with direct fuel exposures in quarter four, as well as investments to support customers in managing their budgets in a period of rising inflation, including the price freeze we've announced today. In New Zealand food, market growth has continued to slow and the market remains highly competitive. While New Zealand foods transformation will continue in H2, progress will be slower than previously anticipated with lower sales growth and higher fuel costs and store operating model disruption expected to result in H2 EBIT being modestly below H2 S25. S26 EBIT is still expected to be above S25. While BW sales remains modest, the quality of sales is strong. BW remains on track to deliver positive even and cash flow for F26 in line with previous expectations. It is still too early to predict with any certainty the direct and indirect impacts on F27 from the conflict in the Middle East and how this will impact customer shopping behaviours. We will provide a further update at our F26 full year results in August. Finally, we acknowledge that the ACCC court proceedings against us is concluding today and tomorrow. As the case is before the courts, I won't be commenting on the proceedings. Looking ahead, while the outlook remains uncertain, by putting customers first, maintaining a strong focus on productivity and cost discipline, I am confident that we can navigate the current environment to continue to build a stronger, more resilient business while balancing the needs of all of our stakeholders. I would like to finish by thanking our team for their hard work and commitment to our customers. I'll now turn the call over to the operator for questions. To give everyone a chance, can I please ask that you limit it to one question per person and then rejoin the queue with any follow-up questions. Thank you.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question today comes from Sean Cousins with UBS. Please go ahead.