Coles’ Monday Of Reckoning

By Glenn Dyer | More Articles by Glenn Dyer

Isn’t it heartening to see some life in the fading form of Coles Group, which was the country’s second biggest retailer?

Coles shares rose 30c to $15.98 yesterday as the sharks started circling ahead of next week’s interim profit announcement and expected release of the break-up details.

For Coles, its board and management, breaking up is going be hard to do but it willprove to be terminal.

They have disappointed investors on all counts and by later this year a part of the retail giant will still be the second biggest retail presence in the country (the supermarkets, liquor and Kmart), but it will be a very much a faded version of what it once was.

This week we had a reminder of what Coles management couldn’t do in its Myer department stores: make them sing and earn good profits like David Jones revealed.

More than $71 million for the interim profit, with over $100 million in prospect for the full year and most of the increase coming from retailing, not from the David Jones credit card business, as it did two years ago, when Myer was being sold.

For David Jones its merchandising and good accessories and ideas.

For Coles it was always buzzwords, the latest business jargon and poor performance.

Now as the rump of Coles Myer approaches the most important interim profit announcement in its history, and the last in its present form, there’s more doubt about the actual earnings of the group.

Internal emails are being investigated about questions raised about sales growth figures given with the first quarter sales figures late last year.

Coles management and chairman, Rick Allert, will have to front the media next week to reveal the full extent of the damage from most tragic corporate revamp in Australian history: Coles Every Day Needs which was the mantra from CEO, John Fletcher when launched last September-October.

That was going to turn around the good ship Coles Group, away from the attempted private equity embrace from a group of Private equity investors led by US giant, KKR.

Why tragic: less than eight months later the revamp is dead, the costs are rising, earnings are falling and Coles will be broken up and sold off, hopefully to the highest bidder.

Yesterday there were suggestions the break-up would see three groups of assets offered: supermarkets, liquor and Kmart, Officeworks and Target.

At the same time Macquarie Bank stuck the boot into the company’s 2008 profit prospects by downgrading its profit forecast by 19 per cent below the retailer’s already downgraded guidance.

The $779 million profit forecast by leading Macquarie retail analyst Greg Dring compares to Coles’ own profit target of $960 million for 2008, which was cut by 10 per cent last month as the company put itself up for sale.

There is now a vast gap of $280-odd million between the revised Macquarie forecast and the $1.066 billion profit target of Coles of last September – which anchored its ‘NO” to two takeover bids from a private equity consortium led by KKR.

The MBL 2008 forecast is lower than the $794 million it expects Coles to earn this year.

Coles announces its interim profit on Monday, when hopefully there will be more information on the disputed state of same store sales growth in supermarkets and the Bi-Lo chain whose conversion to Coles supermarkets seems to have been botched badly, sinking the whole transformation idea.

UBS says Coles should report a first half profit around $474 million, lower than the previous corresponding period’s $484.5 million, when it reports on Monday.

The interim figure is merely a historical record because Coles will not be around later in the year to report a final figure for the year, unless an optimist emerges to pay full price of more than $19 billion for the retailer and agrees to keep it public.

And the Easter Bunny and Santa Claus are real as well.


About 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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