Why the Coles share price sunk today

The Coles Group Ltd (ASX:COL) share price has been falling since it hit the ASX boards.

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The Coles Group Ltd (ASX: COL) share price is down 0.4% to $11.41 today despite the supermarket group releasing no specific news to the market.

Worryingly for shareholders the stock is now approaching its lowest level as an independent business after being spun off from investment conglomerate Wesfarmers Ltd (ASX: WES).

For the six-month period ending December 31 2018 the supermarkets and liquor operator posted group earnings before interest and tax (EBIT) (on a retail calendar basis and excluding one-off costs) of $733 million, down 5.3% on a comparable basis with the group flagging the additional costs "associated with being a standalone ASX entity" also weighing down the results.

EBIT falling by mid-single-digits is not a great start for Coles Group, despite the fact it also reported its 45th consecutive quarter of same-store sales growth and a 2.6% lift in total sales.

For investors in Coles and the likes of Woolworths Limited (ASX: WOW) the key metric to watch (despite the sales growth) is profit margins, as they continue to come under pressure as the two supermarket giants' duopoly on the groceries (if not liquor) sector is shaken by discount overseas competitors such as Aldi and CostCo.

As a Coles investors it's also worth considering why Wesfarmers' management decided to offload the business, even though it is yet to identify an alternative place to invest the capital received.

Motley Fool contributor Tom Richardson has no interest in any company mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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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