Why Woolworths was obliterated as shares plunge 15% to 5-month low

It's incredibly rare and uncharacteristic to see a defensive consumer staples stock like Woolworths (ASX: WOW) experience such a face-ripping one-day selloff.

Shares in the supermarket giant plunged as much as 15.8% ($28.14) on Wednesday after reporting a weak FY25 result and disappointing FY26 guidance. The selloff was amplified by comparatively stronger results from rival Coles (ASX: COL) just a day earlier.

FY25 results at a glance

The result largely met market expectations, though the dividend was a little soft.

• Revenue up 3.6% to $69.08bn vs. $69.31bn est (0.3% miss)

• EBIT ex-items down 12.6% to $2.75bn vs. $2.78bn est (1.1% miss)

• Normalised NPAT down 17.1% to $1.39bn vs. $1.38bn est (0.7% beat)

• Final dividend down 21% to 45 cps, total dividend down 41% to 84 cps vs. UBS ests of 86 cps (2.3% miss)

Though concerning trends emerged beneath the headline numbers.

• EBIT from the Australian Food segment, which generates the majority of Group EBIT, fell 12.6% to $2.75 billion, landing 1.2% below consensus.

• Australian Food's return on funds employed (RoFE) dropped 4.8% year-on-year, which RBC Capital Markets analyst Michael Toner called "concerning for investors

FY26 guidance disappoints

The early trading update proved particularly damaging. "We believe investors will likely focus on the first 8 weeks trading for Australian food which posted 2.1% total sales growth, below 2.9% consensus estimates," Toner noted.

Another factor to consider is that Woolworths shares had rallied 2.4% on Tuesday following Coles' strong FY25 results. This positive momentum may have inflated investor expectations and the share price ahead of Woolworths' own announcement, making today's results feel even more disappointing by comparison.

Comparatively, Coles delivered across the board in FY25.

• Revenue up 3.6% to $44.35bn vs. $44.35bn ests (in line)

• Underlying EBIT up 7.5% to $2.22bn vs. $2.10bn ests (5.7% beat)

• Underlying NPAT $1.18bn vs. $1.11bn ests (6.3% beat)

• Total dividend of 69 cps vs. Goldman Sachs ests of 64 cps (7.8% beat)

Coles also highlighted supermarket sales growth of 4.9% in the first eight weeks of FY26, more than double Woolworths' (2.1%) trading update.

Tobacco headwinds

The tobacco sales decline shows the contrast between the two retailers. Coles successfully absorbed a 30% decline in tobacco sales, which now represent less than 3% of total sales compared to an 8% peak in FY19.

Meanwhile, Woolworths flagged this as a major headwind. CEO Amanda Bardwell warned: "We are facing near-term challenges which will impact growth in FY26 including a material acceleration in the decline in Tobacco sales expected to impact EBIT by $80-$100 million."

Guidance concerns

Bardwell's guidance commentary also offered little support. She expects "Australian Food to return to mid to high single-digit reported EBIT growth in FY26 driven by progress on our strategic priorities, benefits of above-store cost savings, cycling one-off items in the prior year and a more stable operating environment."

However, RBC analysts noted that if "mid-to-high" EBIT growth translates to 7.5%, this implies $2.95 billion EBIT versus market expectations of $3.11 billion or a 5.1% miss.

The bottom line

Woolworths' result exposes a company struggling to execute while its main rival pulls ahead. The 15.8% selloff reflects more than just disappointing numbers but a strategic gap that continues to widen between Australia's two supermarket giants.

While Coles has successfully navigated structural headwinds like declining tobacco sales and emerged with stronger margins, Woolworths appears caught in a cycle of setbacks. The company was hammered by industrial action in late 2024 when approximately 1,500 warehouse workers across four distribution centres walked off the job, and more recently took a hit from closing MyDeal.com, a venture it acquired for $270 million just two years earlier.

The market has taken notice. Woolworths shares are down around 20% over the past twelve months, while Coles has surged almost 25%. This performance gap has pushed Woolworths' share price relative to Coles to historic lows, potentially creating a contrarian opportunity for value investors. However, while the relative valuation may look attractive, the operational reality tells a different story — in terms of earnings, margins, and execution, Coles remains the clear winner.