The Coles Group Ltd (ASX: COL) share price will be in focus on Thursday.
Hot on the heels of a first quarter update from Woolworths Group Ltd (ASX: WOW) yesterday, Coles has released its own this morning.
What happened in the first quarter?
During the three months ended 30 September, the supermarket giant reported a 1.5% increase in total sales to $9,756 million. This growth was driven by its Supermarket and Liquor businesses, which offset weakness in the Express business.
Supermarkets sales increased 1.8% over the prior corresponding period to $8,620 million and 1.4% on a comparable store basis. Management advised that as a result of lockdowns, there was a return to local shopping at the expense of shopping centres. In addition, the company experienced increased demand for eCommerce, resulting in strong online sales growth of 48%.
Coles' Liquor sales rose 2.6% to $874 million or 1.4% on a comparable store basis. This reflects higher home consumption due to the closure of on-premise venues in New South Wales, the Australian Capital Territory and Victoria for most of the quarter.
Finally, the Express business reported a sizeable 10.1% decline in sales to $262 million. This reflects the impact of lockdowns during the quarter.
COVID costs
Coles revealed that it incurred COVID-19 costs of approximately $75 million (inclusive of team member discounts) in the first quarter with costs accelerating in August and September.
This was largely due to the approximately 20,000 team members required to isolate in New South Wales and Victoria, additional door greeters to ensure QR code compliance in store, and lower productivity due to shift bubbles in distribution centres.
COVID-19 costs are expected to peak in October and then start to moderate in November and December due to recent changes in isolation policies.
Management commentary
Coles' CEO, Steven Cain, commented: "As we embarked on our third year of strategy execution, the COVID-19 Delta strain presented significant challenges in the quarter, which are now beginning to ease as vaccination rates increase. I would like to thank the Coles team, our suppliers and community partners who have done an extraordinary job in this 18-month battle with COVID-19 to ensure continuity of supply as an essential service."
"We are now looking forward to providing a safe and happy Christmas and summer season, serving Australians with more sustainable, great value and easy entertaining inspiration – for what we expect will be a record number of smaller gatherings for families and friends."
Outlook
The second quarter of FY 2022 has started positively, with Supermarkets comparable sales broadly in-line with the first quarter.
In Express, current fuel volumes are impacting profitability, however volumes are expected to recover in the second half as consumer behaviours normalise and mobility increases.
Outside this, management is optimistic on the future and particularly the important Christmas period.
It commented: "With the end of significant COVID-19 restrictions in sight, consumer savings at an all time high, and the recent launch of a new large range of great value easy entertaining, Coles is optimistic for the Christmas and holiday period as families and friends get together again."
