Wesfarmers Ltd (ASX:WES) releases strong Coles sales update: Should you invest?

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In morning trade the Wesfarmers Ltd (ASX: WES) share price has edged lower following the release of its first quarter sales update for the Coles business.

At the time of writing the Wesfarmers share price is down 0.5% to $47.05.

What was in the update?

The Coles business had a strong first quarter thanks to the success of its Little Shop promotional campaign.

According to the release, Coles achieved total sales of $9,838 million during the first quarter, up 5% from $9,370 million in the prior corresponding period.

The star of the show was its Supermarket business which achieved sales of $7,657 million, an increase of 5.8% from the same period last year. Management advised that comparable food sales increased 5.1% for the quarter thanks to significant growth in average customer basket size, units sold, and transaction growth. In addition to this, improvements in its fresh market share and food inflation supported the positive sales result.

Coles’ Liquor business appears to have also benefitted from the increased traffic, posting a 2.1% lift in sales to $744 million. Comparable liquor sales increased 1.3% during the period.

Finally, the company’s Convenience segment also performed well. Including fuel, it posted a 2.5% increase in sales during the quarter to $1,437 million. Headline convenience store sales grew by 2.4% and 3.4% on a comparable store basis. Management put this down to improvements in its food-to-go offering and convenience range. This offset a 14.8% decline in headline fuel volumes due to a substantial increase in the cost price of fuel caused by higher global oil prices.

Should you invest?

According to a note out of Goldman Sachs, it was expecting a strong first quarter from Coles driven by comparable store food sales growth of 4.5% and comparable liquor sales growth of 3.5%.

While the liquor sales have fallen short of expectations, this has been offset by the stronger than expected food sales. So, overall, this looks like a strong result from Coles ahead of its demerger.

But it hasn’t been enough for me to want to invest just yet. At the current price I would class its shares as a hold right now, along with industry peer Woolworths Group Ltd (ASX: WOW), and suggest investors wait for a better entry point.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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