Current sales spikes aside, Airlie Funds Management believes the prospects for Coles are attractive as it continues the operational turnaround that began under Wesfarmers, and the industry emerges from a difficult decade characterised by new entrants, strong competition and price discounting.
Major women's fashionwear retailer Mosaic Brands has become the latest chain operator to shut stores and stand down staff indefinitely. Casino operator, Star Group has also stood down around 90% of its staff of 9,000 while Wesfarmers has shut its Kmart stores in New Zealand as the coronavirus outbreak continues to escalate.
Investors have paid no heed to partial figures from the ABS yesterday showing a 0.4% rise in seasonally adjusted retail sales in February. The rise came from the supermarket sector as other parts of retail, particularly associated with tourism or hospitality, are likely to plummet.
Coles' result came in 3% above the company's pre-announced number earlier in the month, largely due to better than expected cost-outs. UBS is surprised by the solid performance of the supermarket in the face of higher levels of investment by rivals.
Morgan Stanley observes supermarket industry margins have re-based and this has paid off for the major operators. The broker believes execution will be a differentiator in supermarkets in 2020 and Woolworths has a margin advantage, partially reflecting its scale advantage. This is considered unlikely to be eroded over the medium term.