Forewarned Market Takes Coles Weakness in Its Stride

At the time of its February interim results release, supermarket giant Coles warned of the growing possibility it would see slowing sales growth or even a fall in the six months to June and into the next financial year as it moved through the comparison cycle with the Covid-driven sales boom in early 2020.

It was a warning to investors that was clear and well explained, so when the fall did eventuate in the March quarter, according to the retailer’s three-month update on Wednesday, investors were not surprised.

And investors reacted to the conditioning by pushing the share price up 1.4% yesterday to $15.85.

The question now is whether investors will accept the Woolies performance in its third quarter trading update due out on Thursday (today).

Coles said supermarket sales fell in the first quarter as the retailer cycled through the panic-buying spree during that occurred during the initial stages of coronavirus lockdowns in late February and March last year.

Total food sales for the March 2021 quarter dropped 6.1% to $7.72 billion, and by 6.4% on a comparable basis.

On a two-year basis (ie from the first quarter of 2019), comparable sales were up 6.7%.

Coles said it had included two-year sales growth results to provide an overview of performance that excludes the trading surge through much of 2020, but especially the six months to June.

Comparable sales growth a year ago was a hard to top 13.1% so a fall in 2021 is easy to understand.

It is likely there will be another fall reported for the 4th quarter mid-year for the same reason.

Coles said its supermarket eCommerce sales grew by 49% with sales penetration increasing to 5.5% in the third quarter, up from 5.3% in the December quarter.

The retailers Own Brand products saw sales in the third quarter of $2.5 billion (they have better margins in most cases than comparable branded products).

More than 260 new products were launched in the quarter including Coles Perform, a new sports nutrition brand with a range of nutritionist-approved frozen meals, and the Urban Colour brand offering cosmetics for customers seeking affordable luxuries

Liquor sales were up 2.6% to $759 million from a year ago – and up 2.1% on a comparable basis – while Coles Express revenue grew 7.4% to $275 million with sales up 6.3% on a comparable basis.

This growth was because the COVID-19 impact on these businesses appeared in late March 2020 as Australia entered a national lockdown which led to the closure of bars, clubs and hospitality venues and reduced levels of road traffic.

The supermarkets saw panic buying and hoarding start in February as reports from China about the pandemic rose sharply as did cases here.

Coles said COVID-19 costs were at the low end of previous guidance.

Looking to the rest of the year Coles had some upbeat news about the latest sales figures.

Coles said that during the first four weeks of the fourth quarter, supermarkets sales, adjusted for ANZAC Day timing, increased by approximately 4% on the prior corresponding period and 8% on a two-year basis.

The company said it also saw more signs of normalising consumer behaviour. These include improved transaction growth, a recovery of COVID-19 impacted categories, Sunday returning to be the busiest trading day of the week, and positive indicators of the unwind of ‘local shopping’ as customers returned to shopping centres and CBD stores.

No guidance has been given for the quarter or full year result.

 

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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