The Coles Group Ltd (ASX: COL) share price is up close to 1% amid comments by the CEO that the supermarket business is expecting to report a very strong end to the 2021 calendar year.
According to reporting by the Australian Financial Review, the Coles CEO Steven Cain is expecting a record Christmas as consumers spend some of the cash that they have saved. Mr Cain thinks that people are going to spend up on both food and drink.
The AFR quoted Mr Cain, who said:
There’s a lot of catching up to do. There’s $100 billion extra sitting in people’s bank accounts. We expect a fair share of that to be spent on food and drink. There’s a lot of premiumisation.
Potential inflation is coming under increasing focus. At the moment, red meat is the only place where inflation is “justified”. It was reported that there are shortages when it comes to red meat because of intermittent COVID-19 restrictions on meat processors. However, other areas are also seeing a bit of inflation.
The newspaper said new investment bank Barrenjoey has warned that shoppers will have to prepare for the highest supermarket prices over the last decade as suppliers try to make up for the higher prices of commodities, packaging and freight. Suppliers may be wanting price increases of mid-to-high single digits, less product discounting and more “shrinkflation” (where products get smaller).
How is it doing at the moment?
In terms of the Coles share price, it’s up around 10% over the last six months, though it is down 8% since 23 August 2021.
The latest result that investors have seen was the FY21 report. That’s when the company said it had achieved 3.1% sales growth, 6.3% earnings before interest and tax (EBIT) growth and a 7.5% rise of net profit after tax (NPAT).
As part of the result release, Coles gave its outlook for FY22. The company said that local shopping trends had re-emerged, with e-commerce and neighbourhood stores outperforming shopping centre and CBD locations.
In supermarkets, sales growth in the first seven weeks of the first quarter of FY22 was approximately 1%, with 12% growth over two years. The first several weeks of FY21 included elevated sales from Victoria. E-commerce penetration was approximately 8% in the first quarter. In July, Coles supermarkets incurred about $15 million of COVID-19 costs.
Coles said that liquor sales were strong as lockdowns continued, with growth being flat year on year, but up 19% on a two-year basis.
In Express, fuel volumes were being impacted by lockdowns, with average weekly fuel volumes of approximately 49ML in the first seven weeks.
In ‘other’, FY22 corporate costs are expected to be approximately $75 million. But smarter selling benefits are expected to be more than $200 million in FY22. It’s going to renew around 50 stores and open another 20 in FY22.
The business continues to invest as it works on its two new Witron distribution centres.
Coles share price valuation
According to Commsec, Coles shares are currently valued at 22x FY23’s estimated earnings.