Woolworths to Deal With a Range of Temporary Issues in Fiscal 2023, but Long-Term Thesis Unaffected

Inflation in costs and shelf prices, more out-of-home food consumption and declining sales volume, evaporating COVID-19 expenses—these are the three key challenges and opportunities we see for Australian supermarket operators in fiscal 2023. We expect the combination of these themes to result in relatively weak sales growth and a slight decline in operating margins for Woolworths and Coles. However, we expect the trading environment in Australian food industry to have normalised by fiscal 2024 and Woolworths and Coles to increase operating earnings around 4% per year for the remainder of the decade.