The Coles Group Ltd (ASX: COL) share price will be one to watch this week when it releases its third quarter update.
Ahead of the release, I thought I would take a look to see what is expected from the supermarket giant.
What is the market expecting from Coles?
According to a note out of Goldman Sachs, its analysts note that the supermarket industry is entering an "interesting phase". This is due to it cycling through the COVID-19 pantry stocking boom late in the third quarter of FY 2020.
In fact, according to the Australian Bureau of Statistics, supermarket and grocery sales grew 24.8% in March 2020. As a result, Goldman expects both Coles and rival Woolworths Group Ltd (ASX: WOW) to have seen comparable sales decline notably during March. Particularly given recent data out of National Australia Bank Ltd (ASX: NAB).
The broker commented: "NAB reported cashless retail sales in the Supermarket and grocery segment to have been down c. -14% in March 2020. By comparison, our comparable growth estimate for COL implies March 2021 trading at -14.5% assuming that the early quarter trends continued into end of Feb 2021. Similarly, for WOW our estimates imply a comparable sales decline of c. -13% for March 2021."
What does Goldman expect Coles to report?
Goldman expects Coles to report a 3% decline in comparable food sales for the quarter but a 2% increase in liquor sales.
This is expected to lead to total sales of $9,039.6 million, comprising food sales of $7,960.4 million and liquor sales of $802.5 million.
Is the Coles share price in the buy zone?
Despite the softer trading, Goldman Sachs remains positive and believes the Coles share price is in the buy zone.
It commented: "While sales are expected to be volatile, we continue to believe that industry profitability will be manageable over CY21 and believe the current market concerns over a price war in the sector are overstated."
Goldman has therefore retained its buy rating and $20.70 price target on its shares. Based on the current Coles share price, this represents potential upside of almost 32%.
