Coles Group Shares Rise 1% as First-Quarter Update Shows Solid Sales Growth

Highlights

• Coles Group reported a 2.9% rise in total sales to AU$10.55 billion in Q1, driven by a 3.5% increase in Supermarkets revenue.
• Exclusive Coles products saw strong growth, while the Liquor segment struggled with flat sales and a 4.4% decline in comparable sales.
• Coles is investing AU$880 million in a new automated distribution center in Victoria to boost supply chain efficiency.

Coles Group Ltd (ASX:COL) saw its share price increase by 1% to AU$17.90 in morning trade on Thursday after the company released its first-quarter update, highlighting robust sales growth in its core Supermarkets business. For the quarter ending 29 September 2024, the supermarket giant reported a 2.9% rise in total sales to AU$10.55 billion.

Strong Supermarkets Performance

The primary driver behind Coles' first-quarter gains was its Supermarkets division, which delivered a 3.5% lift in sales revenue, totaling AU$9.5 billion. When excluding tobacco, sales revenue grew by an impressive 4.9% compared to the previous year, with comparable sales rising by 2.4% during the quarter.

Coles’ strong performance in Supermarkets was underpinned by several key initiatives, including its Winter and Spring value campaigns, promotional activities, and the Winter of Sports giveaway campaign. Additionally, eCommerce saw significant growth, adding to the positive momentum. However, availability issues with eggs due to Avian influenza had a slight impact on sales.

Exclusive to Coles product lines also played a significant role in the company’s success, with sales revenue increasing by 4.5% to AU$3.3 billion. Strong volume growth, particularly in the Food category, demonstrated Coles’ ability to provide value to cost-conscious consumers. Coles Group CEO Leah Weckert highlighted that the company has made several strategic investments to deliver better value across its product portfolio, particularly in key categories like cheese and everyday staples.

Weckert acknowledged the ongoing challenges posed by the rising cost of living but assured that Coles remains committed to offering value through weekly specials, promotions, and exclusive brands. "Pleasingly for customers, meat, dairy, health & beauty, and homecare categories were all in deflation during the quarter," she added. Supermarket inflation, excluding tobacco, dropped to 1%, well below historical levels.

Liquor Segment Struggles

While the Supermarkets division performed well, Coles’ Liquor segment struggled during the quarter. Sales revenue remained flat, and comparable sales declined by 4.4% year-on-year. Management attributed the weak performance to reduced consumer demand, though higher store space growth in Tasmania and the AFL Grand Final helped mitigate the impact. The Liquor segment is expected to focus on a strong value proposition ahead of the festive season to boost sales.

Major Investment in Supply Chain Automation

Coles is making significant strides in transforming its supply chain with an AU$880 million investment in a new Automated Distribution Centre (ADC) in Truganina, Victoria. The facility, developed in partnership with WITRON Australia, will have approximately 15% more capacity than the company’s New South Wales and Queensland ADCs, with the ability to process 4.6 million cartons per week.

CEO Weckert commented on the importance of this investment for Coles' business transformation. "This is another important step in Coles' business transformation as we continue to invest in technology to enhance product availability for our customers and improve efficiency across our supply chain," she said. The state-of-the-art automated distribution center is expected to drive productivity and further capitalize on world-leading automation technology, helping Coles maintain a competitive edge.

Outlook

Coles' Supermarkets segment continues to show strong growth early in the second quarter, with sales revenue in line with first-quarter performance. Management remains focused on supporting families through cost-saving initiatives, particularly in the lead-up to the busy Christmas season.

In contrast, Liquor sales revenue remains subdued, but the company is working to enhance its value proposition to attract customers during the festive season.