Why the Coles (ASX:COL) share price is sinking 6% today

The Coles Group Ltd (ASX:COL) share price is under pressure and sinking 6% on Wednesday. Here’s why investors are selling its shares…

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Coles share price

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It has been a disappointing day of trade for the Coles Group Ltd (ASX: COL) share price on Wednesday.

At one stage today, the supermarket operator’s shares were down as much as 6% to $17.04.

The Coles share price has recovered slightly but remains 5% lower at $17.27 at the time of writing.

Why is the Coles share price deep in the red?

Investors have been selling Coles shares today following the release of its half year results.

For the six months ended 31 December, the supermarket giant delivered an 8% increase in revenue to $20,569 million and a 14.5% increase in net profit to $560 million. This was driven by solid growth across all segments.

Given that this result was largely ahead of the market’s expectations, investors may be wondering why the Coles share price is tumbling lower today.

Well, that appears to be down to management’s commentary regarding its outlook.

Coles’ cautious outlook

While the company has started the second half positively and delivered comparable store sales growth across both its Supermarket and Liquor segments, management’s outlook has spooked investors and put pressure on the Coles share price.

Coles warned: “Depending on COVID-19, vaccine roll out and efficacy, and other factors, sales in the supermarket sector may moderate significantly or even decline in the second half of FY21 and into FY22.”

The company also notes that it will soon be cycling elevated sales from COVID-19 late in the third quarter. This was a time when panic buying, pantry stocking, and toilet roll hoarding swept the nation. Given that these factors are (hopefully) unlikely to repeat, it will have a tough time outperforming those sales figures.

What about the future?

Looking beyond the short term headwinds that Coles is about to face, CEO Steven Cain remains very positive.

He commented: “Whilst COVID-19 will continue to present challenges it will also continue to present opportunities for change. With a strong balance sheet and team, Coles is well placed to continue delivering on our vision of becoming the most trusted retailer in Australia and grow long-term shareholder value.”  

As positive as Mr Cain is, that hasn’t been enough to stop the Coles share price from tumbling today. Though, tomorrow could be better depending on how brokers react to the result. Tune in on Thursday for that.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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