AUS
NZ
UK
CA
USA
IND
Coles Group Ltd (ASX: COL) is concluding 2023 on a disappointing note, with its share price experiencing a 14.5% drop since the beginning of August. Despite ongoing revenue growth driven by Australia's population increase and inflation impact on prices, rising costs have contributed to the decline.
Outlook Insights from Coles:
In the first quarter of FY24, Coles reported a 4.7% increase in sales at supermarkets and a 1.8% rise in liquor sales. Notably, there was a significant uptick of 24.6% in supermarket e-commerce revenue, and liquor e-commerce revenue saw robust growth at 32.2%. This performance is relevant in the context of ASX consumer stocks. Coles emphasized the enhancement of store availability and noted moderate inflation in key categories, with certain segments experiencing deflation. Investors in ASX consumer stocks may find Coles' sales and e-commerce trends to be of interest amid these market dynamics.
During its annual general meeting (AGM), Coles shared insights into its "simplify and save to invest" program, aiming for $1 billion in cumulative savings over the next four years. Operational developments include the Redbank automated distribution centre in Queensland servicing 219 stores, with plans for the Kemps Creek location in NSW to receive inbound deliveries in Q3 FY24. The first customer fulfilment centre in NSW is set to go live in mid-2024.
Challenges and Forecasts:
However, challenges loom as Coles estimated a $20 million annual impact from the recent increase in Victorian payroll tax. The Fair Work Commission's annual wage increase will also raise store remuneration by 5.75%.
UBS, after reviewing Coles' first-quarter update, expressed concerns about execution compared to rival Woolworths and perceived risks of market share loss to Aldi. The broker cautioned about potential declines in the EBIT margin, citing factors like theft, higher wages, distribution warehouse costs, and increased depreciation and amortization.
UBS forecasts an EPS of 74 cents and a dividend per share of 60 cents for FY24, placing the Coles share price at 21x FY24's estimated earnings with a grossed-up dividend yield of 5.5%. Despite these challenges, Coles aims to counteract theft issues through initiatives like 'skip scan' and smart gates.
In summary, Coles faces both opportunities and challenges, with its ability to navigate cost pressures and market dynamics influencing its performance in 2024.
