Everything seemingly on the up at Coles

Company News

by Glenn Dyer

Everything it seemed was higher at Coles (ASX:COL) in the year to June.

Prices in its supermarkets rose, sales revenue rose, earnings rose and dividends for shareholders were raised.

A win-win, right?

Not quite as the supermarket shelves of Coles, and rivals Woolworths (reporting Thursday), Metcash (already reported) and hundreds of other smaller grocery and food retailers are where millions of Australians are feeling the pain of higher prices for everyday goods, be it bread, meat, fruit and vegies, milk – whatever.

The shelves of our retailers are also where the price pain will continue to be felt in the current December half year – especially at Christmas, and then into 2023.

The country’s Number 2 supermarkets retailer revealed a $1.05 billion profit off the back of $39.4 billion in revenue.

Final dividend was raised to 30 cents a share from 28 cents, and with the steady interim of 33 cents, saw a total for the year to June of 63 cents, up from 61 cents a share previously.

Sales rose 3.7% in its supermarkets segment in the last quarter of the year, while liquor was up 1.9% and sales at Coles Express up 1.1% as the retailer ended the June 30 year on a solid note.

CEO Steven Cain said the company had seen further cost price inflation in July as the price of raw ingredients, supply chain costs and flowed through to bakery goods, produce and packaged groceries.

And while Coles said overall inflation in its supermarkets was 1.7% for the year to June, the final quarter saw this surge to 4.7%.

That’s well short of the 5.9% rise reported by the Australian Bureau of Statistics reported for food and non-alcoholic beverages in the quarter.

“We do recognise that families are under increased pressure from rising prices – we continue to be committed to delivering trusted prices,” Cain said in the statement to the ASX.

However, he pointed to the fact that prices of some products are moderating, with iceberg lettuce retreating from their highs of a couple of months ago.

While fresh produce remains elevated, the business expects conditions to improve slightly in the second half the year.

Coles said its Group EBITDA of $3.4 billion rose 0.2% and Group EBIT of $1.9 billion fell by the same amount.

Coles said its EBIT figure included COVID-19 costs of approximately $240 million and project implementation operating costs in relation to the Witron and Ocado transformation projects of approximately $30 million. Smarter Selling benefits of approximately $230 million were also realised during the year.

The vast majority of these EBIT impacts were borne by Supermarkets while Liquor comprised a minor component. Express earnings softened during the year due to reduced mobility from COVID-19 travel restrictions, Coles said.

And looking to 2022-23, Coles pointed what looks like being a mixed year with cost pressures showing no sign of easing – if anything they could intensify.

“In FY23, Supermarket sales growth will be cycling COVID-19 lockdowns in the first half of FY22 (NSW, Vic and the ACT), and price inflation in the second half of FY22.

“In July, we have seen further cost price inflation in produce due to recent flooding, in bakery due to wheat commodity prices, and in packaged groceries due to various supply chain cost increases including wages, packaging, raw ingredients and freight.

“In Liquor, sales growth is also expected to be impacted by the cycling of COVID-19 lockdowns in the first half of FY22.

“In Express weekly fuel volumes and sales are expected to benefit from increased mobility, having been impacted by lockdowns in FY22. The scale of this benefit will depend on fuel prices and the impact of the Government’s reinstatement of the full fuel excise in September.

“With increasing inflation and rising interest rates placing pressure on many households, Coles will continue to focus on delivering trusted value to customers through our differentiated Exclusive to Coles range, our Exclusive Liquor Brands and our Flybuys loyalty program. We have also LOCKED the price of 1,168 products across Supermarkets and online until at least 31 January 2023 and begun lowering the price of an additional 500 products.

“Consistent with our suppliers and customers, we are also seeing inflationary pressures impacting our own cost base with increasing wages, rent, fuel, supply chain and capital costs. In addition, COVID-19 and the flu has seen increased team member absenteeism costs continue to impact the business,” Coles told the market on Wednesday.

Unfortunately for investors the shares didn’t follow revenue and earnings higher on Wednesday, ending the day down more than 4% at $17.84.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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