Woolworths Group Ltd (ASX: WOW) shares will be worth watching closely next week.
That's because the retail giant is scheduled to release its half year result on 22 February.
Let's take a look to see what the market is expecting from the company.
What is the market expecting from Woolworths?
It's fair to say that the market is expecting a strong result from the retailer.
For example, according to a note out of Goldman Sachs, its analysts are expecting Woolworths to outperform rival Coles Group Ltd (ASX: COL). It is forecasting earnings before interest and tax (EBIT) growth of 12% for Woolworths and flat earnings for Coles.
This strong earnings growth is expected to be underpinned largely by margin expansion in the supermarket business and group sales growth of 3.5%. The broker explained:
In 1H23, we expect group sales growth of 3.5% but EBIT growth of 12% on higher EBIT margins. Specifically for Australia Supermarkets, we expect sales growth of 2.9% with comps sales of 2.3% (2Q23 comps sales 6.0%) and EBIT growth of 16.7% YoY due to 70bps of EBIT margin expansion to 5.8%. Compared to COL, we expect that GPM will hold largely steady due to more personalized offers focusing on targeted promotions, while lower COVID cost with no material implementation cost step-up on the supply chain should provide a tailwind for margins. We also increase Big W EBIT margin to ~1.9% (vs ~1.3% previously) due to still healthy trading in 1H23 observed for consumer spending.
Goldman also suggested that investors look out for any commentary on its recently announced strategy. It added:
We see strategic merit in management's announced strategy to amalgamate Big W and MyDeal with Petspiration (following the planned acquisition of the latter, which is expected to close in mid 2023) into the "Everyday Needs" part of the business, though execution will be the focus given none of these businesses are clear leaders in their sub-segment.
