WOLWF (WOLWF) Q4 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Woolworths Group FY '26 Full Year Earnings Announcement. [Operator Instructions] I would now like to hand the conference over to 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 full year results for the 2026 financial year. I'd like to start by acknowledging the traditional custodians of the land on which we meet today, Darug Country, and I'd like to pay my respects to Elders past and present. Joining me this morning are Stephen Harrison, our Chief Financial Officer; Annette Karantoni, Managing Director of Woolworths Retail; Amitabh Mall, Managing Director of Group eComX; Sally Copland, Managing Director of Woolworths New Zealand; and Dan Hake, Managing Director of BIG W. I will start with an overview of the group's performance in the year and share the progress we've made against our strategic priorities. Steve will then cover our financial performance before I conclude with an update on current trading and the outlook for F '27. We made good progress on our strategy to be the first choice for customers during F '26, and this has led to solid improvement in performance. We focused on rebuilding customer trust through investment in value and the customer experience and by returning to the levels of retail excellence our customers expect of us. This has led to solid item and sales growth, particularly in H2. E-commerce remained strong with an acceleration in H2 and our complementary businesses and services made a significant contribution to growth during the period. We remain focused on restoring a low cost discipline across the group and delivered our above-store cost savings target of approximately $400 million in the year as well as solid productivity. This supported a strong reduction in CODB. Turning to our financial performance on Slide 5. Group sales in F '26 increased by 3.6% with group EBIT growth before significant items of 12.7%. All trading segments delivered an improved performance with our cornerstone Australian Food business, the most significant contributor. The reported EBIT growth did benefit from the cycling the disruption of industrial action in the first half of F '25. Excluding this and supply chain implementation costs, group EBIT would have increased by 8.7% in F '26. I said last year that a key priority was to restore trading momentum in Australian Food. During the year, we invested in value, fresh and convenience, and we worked hard to improve our retail execution. The actions we have taken have led to improved trading with Australian Food sales increasing by 4.6% in F '26 with growth of 5.7% in H2. Sales growth was driven primarily by item growth with an increase in customer transactions and items per basket compared to the prior year. Pleasingly, we've seen this solid momentum continue into F '27. Turning now to Slide 7. Consistent inflation, global volatility and consecutive interest rate rises during the year have continued to put pressure on our customers, with over 40% of customers telling us that they are struggling to make ends meet. Customers remain value focused. And while customer sentiment has stabilized somewhat over the last few months, value-seeking behaviors like shopping across multiple retailers remain elevated. AI is also shaping the way customers shop with 64% of Australians saying that they have used AI assistance to shop. Turning now to Slide 8. Our strategy to be first choice for customers gives us confidence that we can deliver long-term shareholder value. In August last year, we shared our medium-term strategic priorities, and we've made good progress on these in F '26. I'll provide some of these highlights in the next few slides. I'm confident that the progress on our strategy will provide a strong platform to achieve the group's financial aspirations and long-term success for customers, team and shareholders. Turning to Slide 9 and value. To rebuild price trust and provide dependable value, we lowered prices for our customers with more items added to Lower Shelf Price, which has led to an improvement in value for money scores. Providing value customers can trust is even more critical in the current environment, and we're committed to doing more to help them. As our price freeze initiative has ended, earlier this week, we announced the expansion of Lower Shelf Price, now with more than 1,000 products included in the range, with new additions, including mints, chicken, eggs and cheese, recognizing the importance of these as part of the weekly shop. Turning to Slide 10. We also provided more value to our customers through Everyday Rewards program with investment in personalized value and new and popular Everyday Rewards campaign leading to a significant increase in member engagement. A real highlight was the significant increase in customers boosting Everyday Rewards offers across the year. Slide 11. The best fresh offer remains critical to our success, and we've delivered improvements in quality, availability and value during the year. This has helped to deliver Fresh sales growth of 7.7% in H2, and Fruit & Vegetable Voice of Customer NPS ended the year 2 points on the prior year. While pleasing, we know we need to do more to deliver the best quality and range in every Fresh category. We also worked hard during the year to improve our own brand offer. A highlight in H2 was the transformation of our convenience meals range, which included the launch of 83 new and 60 reformulated, ready-made convenience meals, helping to better meet the growing demand for convenience and quality. We have previously spoken about the actions we're taking to improve our range and value offer in key everyday needs categories like pet and baby. In H2, we relaunched Little One's nappy range, featuring improved fit and absorbency, and we've seen an 80% repeat purchase rate. While everyday needs sales growth rates improved in H2, growth remains below other areas of the store, and we'll continue to improve our offer in the year ahead. On Slide 13 and the easiest ways to shop. Engagement with Woolworths digital platforms continues to strengthen with average weekly visits to the app and website increasing 22.9% on the prior year. We also saw e-commerce orders placed using our app exceed 70% for the first time in quarter 4. Seamless digital experiences are critical to today's customer, leveraging agentic AI, Olive, our much loved digital shopping assistant, has transformed into a personal shopping companion, making the weekly shop easier for customers. While it is still early days, we're already seeing customers using Olive for recipe inspiration, meal planning and product discovery. I personally have been using Olive to recommend what to cook using what's already in my fridge alongside top-up items from my Delivery Now order. We also recently launched Smart Basket, which helps customers build their online baskets faster through predictive additions based on purchasing habits, which is seeing positive engagement and customer retention rates. E-commerce growth remained strong in F '26 and accelerated in H2, reflecting customer investments and network expansion. On Demand continues to be the fastest-growing area driven by our ultra-convenience and Direct to Boot Now propositions. Delivery orders delivered in less than 2 hours increased to 47% of delivery sales, up 7 points on the prior year, with over 850 stores now offering On Demand services. Direct to Boot Now more than doubled sales in the year, as we've continued to increase capacity to support demand. A growing pickup mix as well as growth in higher-margin propositions helped support a significant improvement in e-com profit during the year, together with strong productivity and increased scale. Slide 15, execution. Our retail execution has continued to improve over the year. We've delivered better availability for customers through targeted initiatives, including holding more stock weight on key promotional lines and increasing the number of store deliveries over the weekend. While we saw some volatility in quarter 3 due to surge buying driven by the Middle East conflict, pleasingly, we've seen a recovery in on-shelf availability in quarter 4 with our out-of-stock customer metric ending the year above F '25. Our Moorebank supply chain precinct in New South Wales is performing strongly. With the NDC fully operational and the RDC ramping up well with current throughput of over 2.4 million cartons per week. Turning to Slide 16. In New Zealand, progress on our customer strategy and strong cost discipline delivered an improvement in earnings for the year. However, lower sales growth driven by a customer flight to value and disruption from the store operating model changes led to a more challenging H2. Key operational metrics have improved over the course of H2, and we are confident that the new operating model will deliver an improved team experience and customer experience once embedded. While not satisfied with our overall performance, we made good progress on our transformation during the year with investment in Everyday Rewards and value, a wider own brand range and greater convenience supporting improvements in our customer metrics and brand scores. Turning to Slide 17 and BIG W. BIG W returned to profitability in F '26 as improvements to our range and better execution throughout the year particularly in clothing, led to a higher proportion of full-price sales and with less clearance and markdowns. Digital and e-commerce growth remained a highlight with digital visits up 13% on the prior year and total GTV sales, which includes BIG W market, increasing by 3.7%. In New Zealand, trading conditions are expected to remain subdued. We are focused on restoring sales momentum by delivering more value, further enhancements to our range and greater convenience to customers to deliver an improved financial performance in F '27. While trading conditions for BIG W are also expected to remain challenging, our focus will be to build on progress in F '26 through an improved in-store experience, a differentiated range, targeted value investments and accelerating e-com convenience. Turning to Slide 19 and our complementary businesses and services. Finally, our complementary businesses and services made a significant contribution to group earnings, contributing around 1/3 of the group's EBIT growth in FY '26. Some highlights that I want to share. Petstock saw comparable sales growth of 5.8% with strong income growth following a value reset and investment in its e-commerce proposition. PFD had a strong year with solid sales and EBIT growth despite foodservice channel being impacted by a reduction in out-of-home spend in H2 and quick-service restaurant sales remained resilient. Media, rewards and services grew strongly with mobile a highlight and growth in freight, warehousing and international services drove a strong performance in PC+. Turning to Slide 20. In February, I spoke about the strong foundations we've established to unlock the next phase of AI. We believe AI will help deliver better experiences for customers, for team and will help us transform our operations and workflows. While we have a number of projects underway, this slide reflects some of the initiatives that are driving real impact. While I've already spoken about the transformation of Olive through agentic commerce, other highlights include our new marketing assistance fleet, which has transformed the production of our weekly catalog through leveraging AI across planning, drafting and production to bring customer-focused offers to the market faster. We are also empowering our team with tools to help make better decisions and free up their time to focus on customers. An example of this is our Team Assist platform, which is already managing over 7,000 queries per week and resolving 9 in 10 before reaching our advisory team. Finally, moving to progress against our sustainability initiatives on Slide 21. Following the conclusion of our 5-year sustainability plan, we launched our 2030 plan, which resets our ambition for the next phase of our sustainability journey. The new plan focuses on 5 material areas. And we've continued to restore soft plastic recycling across our store network with 108 locations added in H2, bringing the total to over 700 locations. We also continued our partnership with food rescue organizations, including OzHarvest and donated the equivalent of over 44 million meals in F '26 through surplus food donations. I'll now hand over to Steve, who will cover off our financial results in more detail.

Thanks, Amanda, and good morning, everyone. I'll start on Slide 25 with the F '26 results summary for the group. Group sales for F '26 increased 3.6% to $71.5 billion with all trading segments reporting growth. Half 2 sales increased by 3.8%. Group e-commerce sales increased by 15.9%, with an acceleration in growth in the second half to 17.2%, primarily driven by strong on-demand growth in Australian Food. Group's EBIT before significant items increased by 12.7% to $3.1 billion, with the group's EBIT margin increasing by 35 basis points to 4.3%. Half 2 group EBIT before significant items increased by 10.9%. Group NPAT attributable to equity holders of the parent entity before significant items was $1.599 billion, up 15.4% with lower interest costs resulting in NPAT growth ahead of EBIT growth for the year. The group delivered improved shareholder returns in F '26 with group ROFE of 16.4%, an increase of 2.7 points compared to the prior year. Including significant items, NPAT attributable to equity holders of the parent entity increased by 18.1% to $1.138 billion. Turning to Slide 26 and our group trading performance. In Australian Food, total sales increased by 4.6% to $53.9 billion in F '26. Excluding the impact of cycling industrial action in half 1 last year, sales would have increased by [ 4% ]. Within Australian Food, Woolworths Food Retail sales increased by 4.5% for the year, with half 2 increasing growth to 5.7%, reflecting our targeted investment in value, our customer offering improvement in availability and overall execution. WooliesX sales increased by 17%, driven by strong e-commerce growth of 18.6% for the year and 9.6% growth from digital and media, rewards and services. Australian Food EBIT increased by 8.5% with half 2 growth of 7%, within the mid- to high single-digit guidance range we provided. Excluding the impact of industrial action in F '25 and supply chain implementation costs, F '26 EBIT would have increased by 4.8% and by 6.1% for the second half. Gross margin declined by 2 basis points to 28.6% or excluding tobacco declined 20 basis points, reflecting price and promotional investment, [ meat ] pressures and supply chain costs, including fuel. Offsetting this were buying benefits, growth from our complementary services, including Cartology and Everyday and a modest improvement in stock loss in the year. Our cost performance was a highlight with CODB sales as a percentage of sales declining by 22 basis points in Australian Food, with productivity initiatives and above-store cost savings more than offsetting the inflation in store wages volume growth and higher online mix. WooliesX DAP and EBIT was up 70.3% in F '26 with e-com DAP increasing by 99%, driven by strong sales growth, a shift to higher-margin convenient propositions and productivity improvements. Excluding some one-off impacts, including cycling industrial action and cold chain investments in the prior year, eComX DAP would have increased by approximately 50%. New Zealand sales increased by 2.5% in New Zealand dollars in F '26 with EBIT increasing by 8.8%. The second half was more challenging with EBIT declining by 7.7%. A moderation in sales growth in half 2, disruption from the implementation of a new store operating model and a reduction in gross margin led to lower EBIT in half 2 despite good cost control. Gross margin was impacted by price investments as well as higher stock loss associated with the new store operating model with impacts moderating through Q4. In Australian B2B, sales for F '26 increased by 4.2% and half 2 sales increased by 3.4%, driven by strong PFD, PC+ and export meat sales. B2B EBIT increased by 13% with growth driven by higher volumes and cost efficiencies from PC+ and resilient sales and strong cost control in PFD. Half 2 increased EBIT by 10.8% on the prior year. Total W Living sales increased by 1.7% in F '26 and 0.6% in the second half. Full year EBIT of $116 million increased materially on the prior year loss of $31 million. BIG W's F '26 sales increased by 0.9% with EBIT of $64 million, an improvement of $97 million versus last year. EBITDA which excludes the benefit from lower depreciation due to impairments in F '25 increased by 28%, reflecting improved gross margin due to higher full price sales and strong cost control. Petstock sales increased by 12.3%, reflecting strong e-commerce and own brand growth and the benefit from prior year acquisitions. Full year EBIT increased by 33.5% with good and solid underlying growth. The prior year also includes, in W Living, losses from MyDeal, which reduced substantially in FY '26 following the closure of MyDeal in Q1. The Other segment recorded a loss before interest and tax of $260 million, an increase of 23.4% on the prior year, largely driven by lower gains from disposal of properties. Higher short-term incentive costs and costs associated with the transition of BIG W to a stand-alone systems platform. Group also reported significant items after tax of $461 million for F '26, largely related to one-off costs associated with the remediation of award covered salary team members as disclosed in half 1. Moving to Slide 27 and our key balance sheet metrics. Average inventory days declined on the prior year, reflecting the group's solid sales growth despite higher dollar inventory holdings to mitigate potential supply chain disruptions, particularly in Australian Food as well as improved inventory management in BIG W. Average payable days increased on the prior year, largely reflecting the benefit of improved sales momentum in the second half and higher stock purchases. ROFE increased 2.7 points to 16.4%, with ROFE in all trading segments increasing on the prior year. And Australian Food ROFE of 29.2% was up 2.4 points in the year. Moving to Slide 28 and our capital management framework. The group generated strong operating cash flows in F '26, which were invested in sustaining our assets, funding our dividend and investing in growth. And I'll provide some further color on this over the following slides. Moving to Slide 29 and our cash flow. The group reported operating cash flow before interest and tax of $6.5 billion for F '26, an increase of 5.2%. This was driven by EBITDA growth before significant items of 6.7%. The net working capital and noncash movement was largely driven by higher employee-related accruals and noncash-based share payment expense. Tax paid declined by 9.1% due to a lower final payment of the F '25 income tax return paid in F '26, which was somewhat offset by higher tax installment payments in F '26. Cash used in investor activities of $2 billion primarily relates to the group's CapEx spend, which I'll talk about on the next slide. Lower dividends paid in F '26 was due to the prior including $498 million related to a special dividend. And after lease principal payments and dividends, the group generated positive net cash flow for the year of $346 million. Finally, our cash realization ratio of 107% reflected an increase in working capital and noncash. Moving to Slide 30 and CapEx. Operating CapEx for F '26 was $1.84 billion, $187 million lower than the prior year, a reduction in sustaining CapEx primarily related to lower spend on store renewals in Australia in F '26. This was due to initiatives to deliver more efficiency in our spend per store in Australian Food, importantly, without compromising our customer experience from our renewal. This was partially offset by an increase in growth CapEx, primarily reflecting an increase in new store spend, including 17 new Australian supermarkets in the year. Gross CapEx was broadly unchanged on the prior year, reflecting an increase in net property development spend. In F '27, we expect operating CapEx to be in the range of $1.9 billion to $2 billion. Now moving to an update on our supply chain on Slide 31. Many of you had the opportunity to visit our Moorebank precinct late last year. The NDC has been operating strongly for some time now. And pleasingly, the regional distribution center has now achieved volume milestones ahead of expectation. Both sites combined are averaging over 4.5 million cartons per week, and the Moorebank RDC is consistently reaching 2.4 cartons per week, servicing over 300 stores and almost 7,000 SKUs. The successful ramp-up of the facility led us to ceasing ambient operations at our Minchinbury RDC in April this year. Construction of our Sydney Chilled and Fresh DC remains on track with an expected launch early next calendar year for the chilled chamber of the DC. In F '27, we expect a modest reduction in commissioning, transition and dual running costs and continue to expect the benefits from these facilities to materially offset the commissioning, transition and dual running costs of our supply chain investments. Finally, moving to dividends and funding on Slide 25 -- sorry, 32. The Board today approved a final dividend of $0.52 per share, which is an increase of 15.6% on the prior year. This brings the total ordinary dividend for the year to $0.97 per share, an increase of 15.5%, in line with the NPAT growth for the year, with the full year payout ratio of 74.1% at the higher end of our 70% to 75% payout range. After payment of the final dividend, our franking credit balance will be approximately $1.3 billion. Turning to our balance sheet settings. Our net debt-to-EBITDA ratio was 2.5x, lower than F '25 and remaining well within our leverage threshold. And we remain committed to solid investment-grade credit ratings and have significant headroom under our current ratings of BBB from S&P and Baa2 from Moody's. Thanks. I will now turn back to Amanda.

Thanks, Steve. Finally, now turning to current trading and outlook. Woolworths Food Retail total sales increased by 7.6% for the first 8 weeks of the financial year, with a continuation of the momentum from quarter 4 into F '27, primarily driven by item growth. Sales momentum was further strengthened during the period by the success of our Disney Ooshies collectibles campaign, which is estimated to have added approximately 1.5 to 2 points of incremental sales growth. Customers are expected to remain value focused in the year ahead, and we are committed to limiting and impacting the rise in costs through providing low and dependable prices. Wage growth will also remain elevated, reflecting the current year's wage rate increases and progressive changes to pay for our 18- and 19-year-old retail team members. These cost pressures challenge us to be even more efficient, leveraging technology to be more productive in order to reinvest back in the business for our customers. New Zealand Food total sales of 4.2% in the first 8 weeks has seen an improvement in momentum relative to Q4, with some benefit from the Disney Ooshies program. In BIG W, total sales in the first 8 weeks declined modestly on the prior year, reflecting ongoing cost of living pressures on households, particularly budget customers and weaker trade in the everyday business. Our focus for both businesses will be on building on the progress we've made in F '26. In summary, we are pleased with the momentum we have achieved in F '26. While we expect the challenging economic environment to continue with household budgets remaining under pressure. Our strategy to deliver low prices and the best range and convenience gives us confidence we can be the first choice for our customers while delivering for our team and our shareholders in the year ahead. The progress this year would not have been possible without our dedicated team, and I want to thank them for their incredible efforts during the year. And I also want to thank our customers for choosing Woolworths. I look forward to sharing further progress on our strategy at our upcoming Investor Day in November. I'll now turn the call over to the operator for questions. [Operator Instructions]

[Operator Instructions] The first question today comes from Adrian Lemme from Citi.

Interested in the trading update, if you exclude the estimated Ooshies impact that still implies an acceleration in sales growth, are there any signs of pantry stocking in long-life food or nonfood categories that would at least partly explain the strength, please?

Yes. Thanks, Adrian, for the question. Important when we're just looking at the trading performance for the first 8 weeks. I mean, that really starts with a very consistent strong growth across the entire second half of the year. And so we've been steadily but surely building in terms of items and customers across that period. And so we did bring that momentum, particularly from quarter 4 into the early weeks of quarter 1. And then as you say, the Ooshies program was very popular with customers, and we saw that amplification. Even since that's now completed just in the last couple of weeks, we've seen good, strong momentum continue. And so from our perspective, it's been a really strong program that's given some great surprise and delight moments to our existing customers. We certainly saw some customers add a few more items to their basket, and so there might be in some of those pantry areas in particular a little bit of extra item growth that we saw. But we also saw new customers that came and experienced Woolworths and the better experience that we're offering. And so we're expecting to see very consistent, strong momentum continue as we look forward, very much aligned with the momentum that we had in quarter 4.

Congrats on the result.

Thank you.

The next question comes from Tom Kierath from Barrenjoey.

I just got a question on depreciation and amortization. It came in a lot lower certainly than I was expecting, I think, first, most people's expectations. And in the second half, it's actually kind of a bit lower in some of the divisions. Was there, I don't know, a change in accounting policy? Or just a bit of color around that and how we should maybe think about it into FY '27, please?

Yes, Tom, thanks for the question. If -- the way I look at it, we've been pretty stable and consistent in our capital spend for about the last 4 or 5 years. So we've been somewhere between $1.85 billion and $2 billion in the last 4 years. So it's not a surprise to us to see depreciation start to just come back a little bit in terms of growth rates. I think it is -- a couple of things important to note. The first one is, obviously, we got the benefit in BIG W from asset impairments in the prior year, and so we did see a reduction in depreciation in BIG W. And with the currency translation of the New Zealand dollar with the devaluation of the New Zealand dollar, depreciation was broadly flat in NZD, but actually when you convert that back to Australian dollar, you do see a reduction. So we do still expect modest growth in depreciation moving forward, but hopefully, that sort of addresses the slowdown that you observed in the second half.

The next question comes from Peter Marks from Goldman Sachs.

Can I just ask on -- in Australian Food...

Sorry, Peter, I don't think we can hear. Would you mind just speaking up? We're having a little trouble hearing you.

Got me now?

Slightly. Keep asking your question. We'll see if we can [ increase ].

Sorry, guys. Have you got me now?

We've got you now, Peter. Thank you.

Sorry about that. Just on the Aussie Food CODB outlook, we can see the, I guess, the wage impact coming. But can you talk about some of the benefits that you might have coming in FY '27 that might be able to offset that? Just noticed there was some press on possibly offshoring some roles. And I think you're probably carrying some system replacement costs in FY '26 as you roll out. But are there anything else we should be thinking about there?

Yes. Thanks, Peter, for the question. And so as you know, we've been really clear about the way we want to run the business, which is starting with welcoming more customers to shop with us and really driving that volume growth across the Australian Food business and then being very disciplined in the way that we run the business from a productivity and also from a cost discipline perspective, and we were certainly pleased with the results that we were able to deliver in terms of that CODB reduction in Australian Food in F '26. And our focus will remain on delivering and really being very focused on productivity and cost discipline going forward. And so if you look at that, we've got, as you know, a 4.75% increase in wages for our team that we're very cognizant of in terms of the ever-increasing costs. However, we've also got a very strong productivity pipeline across our stores, our supply chain. And as we've talked previously, we also are looking to our support areas to contribute in terms of productivity and cost savings in the year ahead. And so we have announced our focus on continuing to expand our global support services as part of that. But that's both about increasing our capability and access to global talent and also being more efficient as we go forward. We continue to look at AI and the productivity that we're able to achieve through our areas like e-commerce. If you look at the e-commerce performance, I think a real highlight in terms of the improving profitability in those channels, much of that is about the application of technology to be able to just be more efficient in the way that we pick orders. We also have Moorebank with now being fully ramped up across the NDC and RDC, delivering some real benefits into the New South Wales stores, in particular with pallets that arrive already sorted by aisle, really saving our team a lot of time in stores as well. So certainly, we've got a strong focus going forward on increasingly being more productive, being very cost disciplined because we know that, that enables us to invest in those prices and value that our customer expects and enables us to continue to improve those experiences as well.

The next question comes from Michael Simotas from Jefferies.

My question is on WooliesX and in particular, the part that sits outside of the e-com business. You called out strength in media, rewards and services and in particular, mobile. It looks like there's about $100 million tailwind to the food business in FY '26, but the contribution was smaller in the second half. Is that sort of normal seasonality? Or was the step-up we saw in '26 effectively done, and it won't repeat and continue to be a tailwind into '27?

Yes. Thanks, Michael, for the question. When we look at the WooliesX segment that you're referring to there, we've got our Everyday Rewards, our services businesses as well, which performed very well alongside Cartology. What you're seeing reflected in the second half is also the benefit of some of those cost savings starting to flow through from the simplification and cost reductions that we looked at across our corporate areas last year. And so certainly, as we talked last year, that applied right across all aspects of our corporate office, including the WooliesX area. And so certainly, that's now in our base going forward.

Yes. That makes sense. I'm just a little bit surprised that the contribution was smaller in the second half than the first half. I thought it might have been the other way around.

Yes. I think you just need to take into account that there will also be some different seasonality that applies to some of those businesses as well. So in particular, if you think about Cartology, there's a different profile depending on what programs we might be running across the food business, for example, and the participation of suppliers in those.

And Cartology certainly has a half 1 skew of phasing, but some of our teams will have started on their cost saving initiatives in the fourth quarter of last fiscal. And so there will be just a difference in timing, particularly some of those WooliesX business, I think, started in Q4, so you won't necessarily get the full run rate in that last quarter, Michael.

The next question comes from Shaun Cousins from UBS.

Maybe just a question on Australian Food and Customer Offer Reset program. This has been quite topical, and it seems to be an opportunity for Woolworths to expand its gross margins. How should we think about this as a COGS or a lower COGS tailwind? And maybe what's the early evidence as you started to rationalize range, what that's sort of done for sales in those categories? Conscious there's a lot of noise with Ooshies and other broader momentum you've got there. But really curious around what this does for your gross margins. It seems quite significant an opportunity for you.

Yes. Thanks, Shaun, for the question. I'll give an overview, and then I'll hand to Annette to add some color to this. So Customer Offer Reset for us, as you know, is really about stepping back and looking at each individual category. And ensuring that we have got the offer right for our customers as a starting point. And so our focus is on making sure it's the right range, that we've got the right shelf capacity to be able to hold the range given customer demand. And it's also about recognizing that we need to look for every opportunity to create more value, and those low and dependable prices that we know are important in building customer trust. When it comes to our product margin, that -- if you look at the results of the Australian Food for the year that's just completed, there's actually a slight reduction in product margin in the year. And so our focus, first and foremost, is actually on volume when we look at this program. That's what we're driving together. That's the conversation we have with our supply partners, is how do we drive volume growth together as we move forward to the benefit of, firstly, our customers, our suppliers and of course, Woolworths business as well. I'll hand to Annette just to add a little bit of color in terms of what we're seeing. Mindful, Shaun, that whilst we've shared and been very open about the work that we're doing in this space as part of our range reviews, it's actually only in the last 6 or so weeks that some of the first ranges that were reviewed have rolled out to stores. And so it is very, very early days in terms of results. But with that challenge, I'll hand to Annette.

Yes, thank you. Absolutely right, Amanda. The very first principle of going into a range review is to make sure that we have the absolute best possible offer for our customers. And so it really is about identifying opportunities where we might see the range needing to change and then a portion in the right space, of course, having the right value and price offers for customers. And we've talked about quite a lot over the last 12 months, making sure the products are available when our customers are in our stores or our team are shopping for online. And so with those principles in mind, we're really fully committed to supporting growth and partnering with those suppliers that also believe in that strategic alignment on making sure we have affordable and dependable prices for our customers. And so that's really key. To tend to your specific question around how they're going, Amanda's quite right. It's very early days in terms of what's actually landing in stores. But to give you a sense, we have had one of our bigger ranges in our pasta range reviewed. We saw an optimization of range. So we did see in that example, a reduction of a range by about 5%, so not terribly material but quite a significant improvement in availability of 13%. And so we're learning as we go and as I said, working very strategically with those partners that are really supporting that view around making sure we've got great value and the right range for our customers.

Great. Sorry. And should this be a COGS tailwind for '27?

Sorry?

I'm sorry. Should you get conscious around -- you mentioned that -- going back to margin. You said that product margins actually came back a wee bit in '26. Should we see Customer Offer Reset give you a gross margin benefit in fiscal '27?

Shaun, we're not going to give a forecast on the margin going forward. But just to outline how we're thinking about it more broadly, and that is that we're very committed, as you know, to continuing to find ways to buffer customers in terms of price and continuing to make the right investments in price going forward whilst also looking at the right ways in which we can continue to improve our margin. So that's with better stock loss management, growth in our Cartology and our rewards and our services businesses, in particular. That's our primary focus. Really want to be focused on making sure that we get that overall offer right and then look for ways in which, yes, we can expand our margin in other ways.

The next question comes from Benjamin Gilbert from Jarden.

And I'm just interested in the strong results you've had through July and August in the back of Ooshies, just how you've sort of come up that 1.5% to 2% potential estimated benefit but more importantly, where that incremental growth came from. Was it largely new customers? Was it where you were losing items to Chemist Warehouse, et cetera, in the past? And I suppose how you're thinking around actually trying to hold on to those customers moving forward. So it feels like it's a unique opportunity. You can really lean in on things like below the line, et cetera, to try and retain those. What are you doing to sort of try to lean into retention to really capitalize on this successful campaign?

Yes. Thanks, Ben, for the question. I'll hand to Steve to talk around how we calculated the number. But just to talk to the collectible campaign itself, it did a number of things for us. Firstly, we already had a really strong underlying sales and item momentum coming out of the second half in quarter 4 and then into the early weeks of July. And then since the collectible program has finished, that's continued on similarly to the quarter 4 trajectory that we were seeing. So we're very pleased with that overall. When we look at then the collectibles campaign and customer behavior, we certainly saw a number of things. We see a portion of customers who are already shopping with us and might add a few more items to their baskets so that they qualify for the Ooshie. We also then see some customers, who might not have shopped with us for a while, come and try us again. And as you say, that's a big opportunity for us as we go forward. And then you just see some customers who shop more frequently overall. And so it is a mix of those 3 shifts in behavior that we saw. What we're focused on and what we're focused on during the campaign is how do we create the best possible customer experience overall. Great opportunity for us to introduce those customers who might not have seen the improved value that we have on offer, the uplifted experience that we're able to offer across both our stores and e-commerce. And then as we've come out of this phase now, yes, we've been very focused on how do we continue to retain those customers. So Everyday Rewards plays a really important part of that. We saw really great momentum across the year for Everyday Rewards, strong boosting engagement, up substantially on the year prior, about a 10% increase. And so we know that our loyalty customers are really valuing the Everyday Rewards program, and so it creates a great opportunity for us to be able to direct target them now with additional offers and reasons to shop with Woolies. But we also saw e-commerce very strongly during this period as well and so again, another great opportunity for us, for those connected customers shopping across e-commerce and into our stores to equally be providing more reasons for them to shop at Woolies. But really, from our perspective, the underlying focus here was to make sure that the experience was a good one so that customers would choose us first. And then, of course, we'll continue to use some of those vehicles that we have, loyalty, e-commerce, our promotions to encourage customers to come back. And so I'll hand to Steve just to answer that specific question.

Yes, Ben. I mean, we've provided a range because it is an estimate. But the way we've tried to calculate it is we have a reasonably stable week-on-week sales at this time of year, and so we look at what was the sales growth week-on-week through the promotional period. We also, when we're investing in a customer offer like this, make sure we evaluate the -- both the current and past promotions. So we know the estimated uplift we got from the Disney discs that we ran in the first 8 weeks last year, and we've compared the uplift we've got from Ooshies and really tried to disclose what we think the incremental sales is based on that evaluation of the program and the sales uplift relative to our run rate pre and post the program. But it is an estimate.

The next question comes from Michael Toner from RBC.

Just on the operating CapEx step-up next year, and you've been consistent around that $1.8 billion to $2 billion operating CapEx mark. When is the point at which we can -- you think we can expect lower capital intensity from Woolworths? Is it sort of after FY '28 once those major CFC and Sydney Chilled projects are completed? Or do you think that circa 3.5% growth CapEx to sales is a good benchmark to assume over the medium term?

Yes, we've -- as I said earlier, in dealing with the depreciation question, our capital sort of been between this $1.85 billion and $2 billion consistently for the last 4 or 5 years. We think that, that is the right level of capital from an operating perspective to allow us to reinvest back into the business to sustain the asset base, replace either equipment or technology as well as invest in growth. And you did see a slight mix shift in terms of sustaining come down and growth go up in the year just gone. We've also been focusing on how do we drive as much efficiency as we possibly can out of that capital program. And so in the same way, we want to make every dollar count in our OpEx discipline. The same applies in our CapEx. And so we've really been very focused on how do we make our renewal spend much more efficient without compromising the quality of the customer offer and so I think, really positive results in that regard in the current year. We do -- we are still in the midst of our supply chain capital investment program now. And so we would expect ongoing supply chain spend certainly in F '27 and continuing to step down a little bit in F '28 as we still have our Sydney Chilled and Fresh DC that we're building at the moment, and we've got our Melbourne North automated e-commerce facility that is also due to come online in F '28. And so we do think that envelope is about right. Sometimes, programs are lumpy, just depending on the timing of when they come in. But we think that, actually, if you look at it, capital has been coming down as a percentage of revenue over the last 4 or 5 years. But we do see good opportunities to reinvest back into the growth of our business that can drive both the top line and the bottom line moving forward.

The next question comes from Bryan Raymond from JPMorgan.

Just on the margin outlook for the Australian supermarkets business. You guys are talking in your financial aspirations section of the presentation there to have EBIT growth ahead of sales, which obviously implies margin expansion going forward. You're currently 22 bps below Coles in FY '26. That's obviously not the traditional gap that we observe in the sector given your scale and procurement advantages. So I just wanted to understand sort of some of the levers that you see in '27 and '28, without asking for guidance on margin, of course but in terms of restoring that margin leadership, which most of us sort of expect that to occur. And if it's not customer for reset, in response to Shaun's question, you sort of downplayed the gross margin benefit there, what is the opportunity then to drive better gross margins on a sort of 1- to 2-year view -- or better EBIT margin, I should say, on a 1- to 2-year view.

So Bryan, just to clarify, our midterm aspirations continue to be to deliver mid- to upper single-digit earnings growth as we move forward. And so as you referenced that slide, I think it's important to put that in context over the long term. When you look at the question in terms of CODB, important just to be clear on the distinction of supply chain. I think, Steve, did you want to just cover that?

Yes. I think if you do the comparison between our margin and competitors, we've disclosed we had $113 million of supply chain commissioning transition and dual running costs in those numbers. Now we expect to -- some of those costs to still be in the P&L in '27 and '28, but they will come down and we'll start to see benefits in '27. They won't fully offset those commissioning costs, but there'll be a material improvement. And then we should move to a net benefit position in F '28, just in terms of how we think about the -- those one-off or discrete project-related costs impact on -- and their impact on earnings. But I think more broadly, ultimately, we're trying to drive a sales-driven growth agenda, right? So we want to invest in our customer proposition and value to drive sales. By doing that and having a very strong and disciplined focus on cost and productivity, we would expect sales to grow faster than cost and full margins to -- or for earnings to therefore grow ahead of sales, which, as you point out, will lead to, assuming we deliver that, which is our plan, margins to gradually expand.

And just to build on that, I'd say drawing attention to Everyday Rewards, our services business, Cartology, they provide great opportunities for us going forward there, significant contributors to the margin of the food business overall, and we see strong potential for those businesses going forward to contribute to that. Continuing to manage stock loss well is a significant focus and of course, over the medium term, our supply chain investments continuing to deliver improved productivity and margin efforts there as well. And then if you look at the overall shape of the business, yes, we're very focused on being productive across stores, across our supply chain and across our support offices. But we're also really pleased to see the performance out of our e-commerce business. If you look at the improving profitability that's coming now from that scale benefit that we have, a lot of the work that's gone in around picking efficiently across our stores, in particular, and then a quite attractive margin mix in terms of the most popular shopping experiences, whether that's Direct to Boot or On Demand, actually also being very strong from a margin contribution perspective. So we do see a lot of opportunity to continue to be able to, in the right way, improve our margin opportunities. But it all does start with us really driving a sales and volume agenda first.

The next question comes from Craig Woolford from MST Marquee.

I wanted to follow up on that e-commerce comment. If I do the maths, I think the, let's call it, the e-commerce DAP, if that's the right way to do it, looks to be about a 4.1% EBIT margin, so certainly closing in on the broader Australian Food average. So do you expect there to be a further narrowing of that margin differential between e-commerce and the broader food segment. And if you can weave in to your answer, I'm interested in how the different mix of businesses is affecting that such as On Demand taking a greater share of the sales.

Yes. Thanks, Craig, for the question. Important just to start with, as you know, we think about stores and e-commerce in a connected customer way and with a connected network. And so it's really important as we're looking at the overall performance of the food business that we start with that holistic EBIT number at the total level for Australian Food. DAP is a directly attributable profit figure and represents both all of the direct costs associated with e-commerce and the variable costs associated. It's not directly comparable to EBIT. However, it is fantastic to see the improving DAP performance across the year, a very strong performance overall. And it certainly is something that, as we look forward, we believe we can continue to improve that margin. I'm just looking at Amitabh as I say that. Do you want to pick up the question from there, Amitabh, just around mix opportunities to continue to improve that e-commerce profitability?

Sure. Happy to do that, Amanda. It's very pleasing to have doubled the e-commerce profit from last year to this year. And then as Steve pointed out earlier, some of it is based on the -- some of the challenges we had in the previous year, but we still believe that some of the underlying drivers, and you've spoken to all 3 of the, Amanda, around scale, where we are starting to see fractionalization of cost as we grow the business to better flow-through from profit. The mix, and I'll come back to that, with a mix both of collections and On Demand as well as productivity in how we drive discipline and efficiency in our business, all 3 drivers are actually quite sustainable in improving -- continuing to improve profitability of the e-commerce business. The one specific one to call out, as you pointed out, Amanda, is the growth of On Demand, where we are now running about 47% of all our deliveries are delivered within 2 hours. And it's important to point out the within 2 hours part of it because, a few years ago, we used to talk quite a bit about our same-day mix of the business. But frankly, customers have moved on. They want it quicker. They want it now. And over the years, the investments we made in our store network and our direct good base allows us to continue to drive On Demand at a pace, which is quite appreciated in the market, and we hope will continue to improve and drive our profitability.

The next question comes from Phil Kimber from E&P Capital.

I just had a question on the store network. You guys have done a great job in regaining momentum and building that momentum. But the store renewals, I think was 66 in the year, if I'm reading it right at the back of the release. That seems quite low for a 1,000 store plus chain. Is that sort of the next evolution that's coming that there will be a greater ramp-up of the renewals in the Australian Food business?

Thanks, Phil, for the question. It's around 67 or so renewals across the year, which is broadly in line with what we've been doing over the last couple of years. As you know, we've had a very strong program of consistently renewing our network for the last decade and it's critical that we continue to do so. And it's in our intention to continue that going forward along similar levels. That actually has created for us great growth. As we renew each and every one of those stores, we take the opportunity not just to improve the experience, of course, for our in-store customers and make the role of our store teams easier. But we've also been reshaping our stores so that they can better service e-commerce. And so whether that's adding the Direct to Boots, which we have well over 700 now, whether that's reconfiguring some of our back-of-house space so that we can more efficiently fulfill e-commerce, all of that has been happening for many, many years now, which is why we think we're well set up, is that focus we've had on speed to customer for e-commerce to be able to service now the demand that Amitabh has just talked to. I'll hand to Steve if there's any other comments you might want to make on store network.

Yes, I think a couple of comments. In that renewal number we disclosed in the appendix, it's full store renewals. So we will also run an e-com renewal program. We were adding Direct to Boot and improving the capacity and space for e-commerce, which we don't specifically classify in those numbers. So it's -- we're not only touching those stores. We're touching actually a larger portion of them to really drive the growth component. I think moving forward, really, our sort of goal is in the 65 to 80 a year. It depends on the timing of approvals, capacity of the team. And so it is a range and not necessarily definitive number every year. We look at it in terms of our capital prioritization each year. And I think probably, the other thing to comment on is just new store growth. We opened 17 new supermarkets in Australia in the year just gone over the next 4 to 5 years. We'd actually anticipate, on average, opening between 20 and 25 a year. We -- the pipeline in the last 5 years has probably been just around, I think, 88 or 90 over the last 5 years. It's been a bit slower coming out of COVID and with both interest rates and construction costs, the developer market has been a little bit slower than we would have liked. We're really starting to lean in and leverage our capability of Fabcot to open more centers. And so you would have seen a step-up in our property development capital in the last year, in our CapEx. That's really about ensuring we've got a really strong new store pipeline for the next 5 and 10 years.

The next question comes from Caleb Wheatley from Macquarie.

Can I get your thoughts on how you're thinking about current value perception in Australian Food? Just combining a few of the comments around the COR that you've already made in prior questions. It sounds like value is still a very, very big focus. And also noting the news this week around 100 or so SKUs being added to the Lower Shelf Price program? How much further do you think you have to go in terms of sort of building that customer price trust? And then any other meaningful opportunities kind of outside of value that you're really thinking about to drive underlying sales and repeat visitations, please?

Yes. Thanks, Caleb, for the question. So we're pleased with the progress that we've made across the year in terms of value perceptions. And we measure that in a number of different ways, of course, looking at our Voice of Customer scores at an advocacy level or our value for money score in particular, has improved by 3 points across the year. And I think important to put that improvement in the context of the pressure that customers are experiencing as well. So we're pleased that the investments that we've been making in Lower Shelf Price and providing great promotions and great value from our loyalty program has contributed to an improved value perception. It's going to be important going forward because whilst customers continue to be under extreme pressure when it comes to their household budgets, we know that what we continue to hear from them is they're looking for more value. And they've become savvier over the last 3 years in finding value. And so we're focused on listening to the feedback they've provided, which is low and dependable prices, great specials on the things and the favorites that I love and loyalty that rewards my shopping is what we're focused on providing. I'll pass to Annette to just provide a little bit more color on some of the things that we have been doing in terms of driving that value perception. We still continue to be focused on improving it. So we've made progress, but we've still got more ways to go and in particular, when we think about the number of choices customers have as to where they shop.

Thanks, Amanda. I think absolutely. I'll start with Lower Shelf Prices. Yes, we've added those 100 extra products now over 1,000 products on Lower Shelf Prices. And given that's now well over 12 months into running, Lower Shelf Prices to still see those products in double-digit unit growth is very, very pleasing and is a signal from our customers that they really do value that everyday low and dependable prices. So it's continuing to be a great focus. We're also seeing other trends. We have talked before about customers seeking value through whether that's using the Everyday Rewards, the app, shopping lists. They're really managing their budgets in very different ways. Bulk products is another example of that we've seen in some categories like toilet paper and laundry liquids where we've worked really well with supply partners to make sure we're bringing those great products and prices to customers. We're seeing the larger pack sizes really deliver strong unit growth. So in categories like those where the smaller pack sizes might be in high single-digit growth, the larger pack sizes are certainly in double-digit growth. And so we are seeing customers just shop very differently in many ways. And own brand, of course, continues to be a really strong growth for us at 5.5%, so I think some really good signals from customers that the things that we're focusing on, they really value.

The next question comes from Ollie Ridge from Citi.

Apologies, this is a mistake. I didn't press the button.

We'll move on to the next question. It's from Richard Barwick from CLSA.

I had a quick question on New Zealand. If the first half looked to be sort of 2 steps forward, but the second half is definitely 1 step back with earnings actually going backwards again, so I know that you referenced subdued trading conditions in your outlook commentary, Amanda, But is it -- how should we be thinking about New Zealand? Is it realistic to expect that it can actually deliver earnings growth again for the full year '27?

Yes. Thanks, Richard, for the question. So in the second half, there's really 2 drivers of that softening performance. Certainly, the customer is continuing to be under extreme pressure in New Zealand, actually, even more than the Australian customer. Kiwis are doing it a lot tougher, particularly in the North Island and Auckland, in particular, and we certainly saw that flow through. It's a hypercompetitive market, as you know. And then we had our new operating model in stores roll out in the early part of H2. And we did have some challenges that caused a disruption that meant we had availability challenges and some customer experience challenges as well. Pleasingly, that performance has improved both in terms of the underlying operating metrics of the business but also in our customer scores. But as we look forward, we're just very cautious about where the customer is at the level of competition that exists there. And so whilst, of course, we're focused on improving the performance in the earnings out of the New Zealand business, our first and foremost focus is on sales momentum. I might just hand to Sally just to talk a little around what we're doing on the sales momentum front. That's critically important for us for the period ahead.

Yes. Thank you, Amanda. And I think just would also reiterate what you said earlier at the beginning. I think we -- it was a very tough half for us as a team and implementing that operating model change and really driving strong recovery across all of those customer availability scores, e-com experience. And actually, we are confident, I think, in delivering an improved customer and team experience on the go forward. I think you've spoken to the flight to value for our New Zealand customers still 75% cross-shopping up to 5 banners a month. So a lot of effort going into the customers. And so we really need to be focused on making sure we are providing them great value and range. And so we've sharpened our execution on our customer plan, being invested in value. So some of that has been in our Member Price. So we delivered over 1,500 Member Prices. We've had stronger trade activation across half price weeks. We have held back actually from passing on some cost price increases in key categories like meat for our customers and then really driving more value. So some of the things that launched, the bulk meat value range, market by produce, bulk potatoes, onions, fruit, really the things that Kiwi customers are looking for and they're shopping right now and being focused on that value. And I think -- in the same vein, we really want to continue providing market-leading convenience that has been something that we have had leadership and in the market for a long time and then investing in a more rewarding everyday program. So again, more value to our members who are now shopping in our stores.

Can I just clarify a couple of points there? So obviously, very focused on value, delivering that message loud and clear and so therefore, trying to deliver that value and drive sales momentum. But Amanda, if you talked about that operating model implementation, those issues, are they behind you now. So if that was a drag on the GP is at least that element sort of in the rearview mirror yet?

We're very pleased actually with the performance we've now seen out of the operating model in terms of its contribution. So we're now looking at the contribution from those changes flowing through in the way in which we expected. What we did calling out here is, yes, a strong cautiousness around the market in New Zealand. We absolutely want to deliver and need to deliver improved earnings performance. We're very clear on that. To do that effectively and sustainably over the long term, we do need to get that sales momentum driving forward. And so that's why we talked more to value. So there's more to do in New Zealand, certainly, and that's our focus.

The next question is a follow-up from Adrian Lemme from Citi.

Thanks for a quick follow-up. Questions for Steve, and this may be premature, but I noticed you've had a pretty material reduction in gearing, 2.5x, and you've noted a pretty substantial franking credit balance. Do you see that you have excess capital at these levels of gearing? And if not, where do you need gearing to get to, please?

Yes. Thanks for the question, Adrian. Look, I think I would say we're very happy with actually the cash generation in the year just on the $350 million of positive cash generation, and that has seen our leverage get down to 2.5x, which is sort of towards the lower end of our thresholds. And actually, we're also pleased to see that 15.5% increase in the dividend in line with the NPAT growth. Just the one thing we're conscious of is not in the leverage metric, but we do sit on a relatively material provision for salaried team member remediation. And so at a point in time, once the legal proceedings are settled, that will need to be cash settled and paid. But we are always looking at our balance sheet settings to say we'll -- if we have surplus capital, what is the best way to deploy it? Is it to reinvest it back in the business to drive growth? Or is it to return it to shareholders? And that's something that we'll continue to evaluate.

The next question is a follow-up from Peter Marks from Goldman Sachs.

It's actually a related one for Steve. Just net interest was a bit better in the second half at least versus what I was expecting. It looked like lease interest declined in FY '26. How should we think about like the net interest outlook into '27? And can you just talk to -- talk through some of the drivers there in the second half?

Yes. So you've seen just that lease liability just gradually tick down as we've been focused on really shorting the whale. And so if you look in the financial statements, you'll see reduction of lease terms as we're looking for shorter leases but actually still with plenty of tenure in the option period, so we've got security of the store footprint. So that's driving some of the lease interest reductions. We finished the year with slightly lower net debt, but actually across the year, you've seen interest increase -- interest rates increase modestly. And so we tend to have a hedged book of both fixed and variable interest-bearing debt. I think a couple of things just depends on where the interest outlook -- the interest rate outlook goes as to what impact it has. You may have noticed in our disclosures, we have booked a $20 million interest cost in the second half associated with the interest that accrues on that payroll remediation, and so that will continue to be at around that level until that is resolved. And I think just the other element is we have had a -- with the construction of the Moorebank DC over a number of years, there has been relatively high leasing -- sorry, interest capitalization into those projects, which we would expect to step down. So there's probably signals of an increase in -- a modest increase in interest in F '27 but one that we're just working through.

The next question is a follow-up from Michael Toner from RBC.

Just on inflation and like noting the July numbers. Half an hour ago, it looks like red meat and milk are up again sequentially versus June, which I guess is what you'd expect. But I'm curious as to what you're seeing with customer price increase requests coming through to August. And do you think you have a sense on like when this ends or won't keep getting worse month to month at least?

Yes. Thanks, Michael, for the question. I'll kick off, and then I'll hand to Annette for additional color, particularly on meat. So when we were talking with you in quarter 3, as you know, we're in the midst of the Middle East conflict having just kicked off. And at that time, we were hearing from our supply partners certainly that we would be seeing a substantial uptick in the number of price request increases, but also the quantum what's actually played out as we've reached into May and June, we have reverted back actually to the level of price increase requests that we've, on average, been receiving across the 12 months. And so whilst there was that peak moment, it hasn't sustained. And so we're really seeing both at a quantum and actually at a dollar ask level very similar levels of price increase requests across that 12-month period, and that's continued on average through into the start of this financial year. But then within that, as always, there is some balance in red meat and lamb pricing continues to be a challenge, Annette, alongside dairy as well. So you might want to add some detail there.

Yes, certainly. Those peak requests in that Q3 really did come off and moderate fairly soon after that. We spoke about this last time. And as you said, Amanda, category and commodity-specific is what we're now seeing. And so I mean, meat's been in some levels of inflation for quite some time, certainly the whole way through F '26 just broadly. And then within red meat, both beef and lamb. We have seen a little bit of relief on minced and trim prices just with what's happening in the global market and the export market, but broadly, the net impact is still an increase and as you say, in chiller and that's partly driven by input costs but also driven by demand of customers in high protein categories as we talk about often in cottage cheese, yogurts. And in that red meat category, we have still seen that inflated. But as I said, a lot of the moment is driven by input costs, so it's electricity, packaging and fuel. It's not driven as much as we had anticipated by the impact of the war in Iran.

The next question is a follow-up from Craig Woolford from MST Marquee.

Just a quick follow-up on inventory. Maybe it's Stephen. Just the inventory outlook, I'm interested in structurally whether the Customer Offer Reset program will have any benefits to inventory levels and how you see the working capital and inventory outlook given what was concerns around Middle East and seems less concerns now?

Yes. Thanks, Craig. In both Australian Food and New Zealand Food in really late Q3, early Q4, we made some conscious choices to hold more inventory. And that was in light of the potential risk associated with supply chain disruptions, particularly on some things that we're importing from that side of the world. The other thing we have consciously done is hold more inventory of our faster-turning lines, really, that availability focus that we would have talked to you about probably in Q2, we're focused on saying, actually, do we need to hold more lines of those promotional lines, so the AB lines for ones that are driving a lot of sales. And so we've held more inventory in that space consciously. Now both of these things, depending on the supply mix, don't necessarily need to be unfavorable from a working capital perspective. If you look at our averages, we're about 30 days average on inventory versus over 40 on payable days. And so we'll always look at this from a -- what's the right thing to do for supply certainty and driving sales and also managing the working capital situation. But we feel like -- there are always opportunities, and we're always looking closely at inventory management. But we feel comfortable with the working capital position. I think probably the other thing, be remiss not to say the inventory management in BIG W is a real improvement in F '26. And so the team focused on stock flow and clearance, we ended the year actually with much healthier inventory in F '26 than the prior year.

And will Customer Offer Reset have any impact?

Not that I'm aware of. Nothing material.

The next question is a follow-up from Bryan Raymond from JPMorgan.

Mine's on tobacco. It's obviously back into growth for you guys as it was both your trading update was in line, including and excluding tobacco. So just wanting to -- and there's a lot of press around the material cut to the excise from some. Keen to understand how you see the outlook in tobacco and what -- how that might have played out from a -- I know it's a small part of sales currently, but if we do get a meaningful cut in the excise, that could have quite a significant impact essentially. So any thoughts around that would be helpful.

Yes. Thanks, Bryan. So as you say, across the year, we saw a moderating reduction, if you will. It's still had a very big impact on our earnings performance overall. And so I'd be remiss not to call that out. But certainly, as we cycled across the year and came into the second quarter, the reduction, if you will, in sales moderated. And as we've come into now the new financial year period, you would call it broadly flat, fairly consistent dollars each and every week that we're seeing. As we look at it though, it's actually also really important to have a look at the state-based performance because it's not consistent. So if you look at Queensland, for example, where there's a stronger enforcement focus, actually, we do see a slightly higher level of sales flowing through year-on-year there compared to other parts of the country. But again, as we've seen all the way through the last couple of years, it's actually quite volatile and very different by state and by city. And so it's a really hard one to call. At the moment, certainly, we're looking at it with a relatively flat outlook in terms of sales at the moment. But again, impact size changes, could that have an impact? Is there more enforcement that's put in place in other parts of the country? Certainly, if that were the case, you would see no doubt some uptick as we have in Queensland. But again, it's very hard to predict. We wouldn't call it.

Okay. So you're not planning for that at this stage for any major growth in the...

No, we're not planning for that, Bryan.

The next question is a follow-up from Benjamin Gilbert from Jarden.

So just to clarify the depreciation. So you said you're expecting low single-digit growth for next year because it implies it's probably going to be $150 million below where consensus is sitting. It's a decent amount lower. Is that what you're saying?

I didn't give guidance. I was not seeking to give guidance there, Ben. I was just trying to answer the question about what had happened. And so if you look, for example, at the second -- the best way to look at it is actually the disclosure we give at a business unit level. So for example, in Australian Food, we had 3.7% depreciation growth. And I think in the second half, it was around 4%. So there are certainly some one-off benefits associated with both currency and the cycling of the impairment benefit in BIG W, but I would expect it to continue to grow year-on-year.

Okay. So it will grow. And obviously, we look at that second half trend for food. And then New Zealand, depending on assumptions around currency, there will be some increase, but obviously making assumption on FX and BIG W obviously cycling some of the impairment, hence why that's a bit lower.

Yes, that was the key. It was like worth $40 million roughly benefit year-on-year in BIG W. And so that -- if you're looking at a group level, I think we did try to call this out a year ago, but I'm not sure if I picked it up in consensus.

At this time, we're showing no further questions. I'll hand the conference back to Amanda for closing remarks.

Thank you for joining us this morning. As we've talked, we're pleased with the momentum that we've been able to build right across all of our businesses. And that's one of the most pleasing aspects of this result, is that every business in our group has contributed to an improved performance, and I want to again thank our team for their incredible efforts across the year. We're pleased that more customers are choosing Woolies. We've got momentum, and we plan to continue to build on that in the year ahead. Thank you.