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Coles share price on watch after reporting third quarter sales surge

The Coles Group Ltd (ASX: COL) share price could be on the move today after it delivered exceptionally strong sales growth in the third quarter.

What did Coles announce?

This morning Coles released its third quarter update and revealed just how well it has performed during the coronavirus pandemic.

According to the release, Coles recorded third quarter sales revenue of $9.2 billion, which was an increase of 12.9% on the prior corresponding period.

The company’s key Supermarkets division was the biggest driver of growth. After performing strongly in in January and February, sales took off in March when panic buying hit Australian supermarkets. In respect to the latter, according to Nielsen, Australians made more than 30 million incremental trips to supermarkets in March.

This led to the Supermarkets division achieving comparable sales growth of 13.1%. This was its 50th consecutive quarter of comparable sales growth. Management must now be scratching its head trying to figure out how to top this next year to maintain its impressive winning streak.

This ultimately led to total Supermarkets sales growing 13.8% to $8,230 million during the quarter. Which represents 89.2% of its overall quarterly sales.

Also supporting its growth were positive performances by its Liquor and Express businesses. These businesses delivered comparable stores sales growth of 7.2% and 4.3%, respectively, over the prior corresponding period.

This was a particularly positive result for the Liquor business given how it was negatively impacted by bushfire smog and floods in January and February.

Outlook.

Management advised that the first four weeks of the fourth quarter, which include the Easter period and ANZAC Day, Supermarkets comparable sales growth has broadly trended back toward the levels seen in the early part of the third quarter pre COVID-19.

During this period, Coles has seen an increase in basket size which has been partially offset by a decline in transactions driven by social distancing measures.

Management appears confident on its Liquor business in the near term. It expects to continue to experience elevated sales as long as restrictions on hotels, pubs, clubs and licensed venue operators continues.

Finally, in respect to its costs, Coles expects an elevated cost base in the fourth quarter as a result of the additional investment it is making as a result of COVID-19.

Coles isn’t the only supermarket operator releasing its update this week. Rival Woolworths Group Ltd (ASX: WOW) is scheduled to release its third quarter update and (as I discussed here) similarly strong sales growth is expected from it.

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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 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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