Woolworths Delivers a Solid First Half, But a $485m Wage Provision Clouds the Headline
Woolworths Group (ASX: WOW) posted its H1 FY26 results today, delivering a meaningful recovery in underlying profitability but taking a heavy hit to its reported bottom line from a large legal provision.
The Numbers Group sales rose 3.4% to $37.1 billion for the 27 weeks ended 4 January 2026, while earnings before interest and tax (EBIT) before significant items climbed 14.4% to $1.66 billion. Net profit after tax (NPAT) before significant items increased 16.4% to $859 million — with basic EPS on the same basis lifting to 70.4 cents from 60.5 cents a year ago. The Board declared a fully franked interim dividend of 45 cents per share, up 15.4% on the prior year. On a reported basis, however, the picture was considerably darker. Significant items of $710 million before tax — primarily an expanded provision for historical underpayment of salaried store team leaders following a Federal Court ruling in September 2025 — slashed reported NPAT to just $374 million, down 49.4%. That provision, while large, fell within the company's previously flagged range of $450 million to $750 million (before tax), meaning it was not a complete surprise to the market. Vs. Analyst Expectations Going into today's release, analyst sentiment on WOW had been cautiously optimistic. Shares had already rallied roughly 7.1% year-to-date heading into the result, reflecting growing confidence in the turnaround under CEO Amanda Bardwell. Consensus EPS forecasts heading into FY26 had pointed to around $1.28 for the full year, implying the market was hoping for a notably stronger first half to set the company on track. On the underlying numbers, Woolworths appears to have delivered. The 16.4% growth in NPAT before significant items and the 14.4% EBIT lift comfortably exceeded the mid-to-high single-digit growth the company had guided to in August 2025 — a positive signal. The 45 cent dividend also exceeded consensus dividend forecasts of 99.5 cents for the full year, suggesting the interim alone accounts for nearly half that total and represents a strong payout. The eCommerce performance was a clear highlight, with group eCommerce sales growing 14.6% to $5.4 billion, and the Australian Food eCommerce DAP margin lifting 142 basis points to 3.6%. Outlook Management's tone on the second half was encouraging. Australian Food sales in the first seven weeks of H2 have grown 5.8% (7.2% excluding tobacco), and the company said full-year Australian Food EBIT growth is now expected to come in at the upper end of its "mid-to-high single digit" guidance range. BIG W remains on track to be EBIT and cash flow positive for the year. The Bottom Line Strip out the wage remediation provision and this looks like a genuine recovery story gathering momentum. All segments grew EBIT on the prior year, customer metrics are rising, market share is stabilising, and the $400 million cost-saving program is on track. The lingering risk is whether the legal and regulatory overhang — including the ACCC's ongoing misleading pricing case — continues to weigh on sentiment. For now, the underlying numbers give investors more reason for optimism than Woolworths has offered in some time.
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