The battle of the supermarkets: Why Coles is the superior pick

Coles (ASX: COL) remains the preferred supermarket pick over rival Woolworths, with Citi analysts favouring the company for its stronger sales momentum, superior online growth, and potential for significant capital returns in FY26.

Momentum Likely To Stay

Citi analysts expect Coles to maintain its edge in like-for-like (LFL) sales growth over Woolworths for at least the next few quarters. Investments in automated distribution systems like Witron and Ocado have boosted its online shopping experience and in-store product availability, giving it a clear advantage.

Meanwhile, Woolworths has struggled with customer trust, with its Voice of Customer Net Promoter Score (VOC NPS) stagnating at 43 in the third quarter of 2025, unchanged from a year earlier. This follows a series of missteps in 2024, including controversies over Australia Day merchandise and labour disputes.

Woolworths’ latest attempt to regain ground — by cutting prices on nearly 400 products by an average of 10% through 2026 — mirrors similar moves in 2023 and 2024 that failed to significantly lift sales or customer satisfaction.

Citi notes that Coles has countered with its own seasonal discounts, neutralising any competitive advantage Woolworths might have gained.

Capital Management Potential

Looking ahead, Citi expects Coles to pursue capital management, such as a special dividend or share buyback, following the completion of its Witron and Ocado projects.

Expectations of solid EBITDA growth, combined with reduced capital expenditure, should drive a material decline in Coles' debt-to-equity ratio. As a result, the analysts forecast a $1.6 billion capital return in FY26, enhancing the stock's appeal to investors.

Metrics Take Time To Improve

In contrast, Woolworths faces a longer road to recovery. Historical data suggests it could take one to two years for improved customer satisfaction to boost sales, as seen from 2014 to 2016 when Woolworths trailed Coles in life-for-like sales until regaining ground in 2017.

Woolworths vs. Coles Earnings Outlook

For FY25, Citi projects 1.7% revenue growth to $44.3 billion and 1.9% EBIT growth to $2.11 billion, though reported net profit is expected to decline 4.2% due to higher interest costs. Coles’ dividend is forecast to increase 3.6% to 70.5 cents per share, yielding approximately 3.3%.

In contrast, Woolworths is expected to see stronger FY25 revenue growth of 2.5% to $69.5 billion, following weaker growth in the prior year. However, labour disputes from late 2024 and customer shifts to lower-margin products are projected to reduce EBIT by 13% to $2.79 billion, leading to a 39.5% dividend cut from 144 cents in FY24 to 87 cents in FY25.

On a price-to-earnings basis, Coles is forecast to trade at 26.4x FY25 estimates, compared to Woolworths at 28.4x.

For investors, Coles presents a strong blend of operational resilience and financial flexibility, while Woolworths’ recovery hinges on overcoming near-term challenges. Citi rates Coles a Buy and Woolworths a Neutral.