Coles share price in focus amid solid Q3 sales growth

Coles has reported solid sales growth during the third quarter…

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Key points

  • Coles has released its third quarter sales update
  • The retail giant has reported solid sales growth across its supermarkets and liquor businesses
  • Coles has started the fourth quarter strongly after a positive Easter trading period

All eyes will be on the Coles Group Ltd (ASX: COL) share price on Thursday.

This follows the release of the supermarket giant’s third quarter update this morning.

Coles share price on watch amid solid sales growth

  • Sales up 3.9% over the prior corresponding period to $9.3 billion
  • Supermarkets sales up 4.2% to $8,226 million
  • Liquor sales up 2.8% to $784 million
  • Express sales down 2.1% to $285 million
  • Flood event costs of $30 million and COVID costs of $65 million

What happened during the quarter?

For the 12 weeks ended 27 March, Coles reported a 3.9% increase in sales to $9.3 billion. This was driven by solid growth across its supermarkets and liquor businesses, which offset softer sales from the express business.

The release notes that supermarkets sales were elevated in the early part of January as the Omicron variant spread through the community. And while they were then impacted by the floods in New South Wales and Queensland, with supply chain challenges impacting availability and sales, it wasn’t enough to stop Coles’ supermarkets from reporting comparable store sales growth of 3.9%.

Coles also highlights that local shopping trends re-emerged with the contribution from neighbourhood stores greater, as compared to shopping centres and CBD stores, in the third quarter compared to the second quarter.

The Liquor business was also on form, reporting comparable store sales growth of 2.8% for the period. This was driven by growth across all states, despite the impact of the significant flood events and rising Omicron cases in the early part of the quarter limiting social gatherings and thus liquor consumption.

Finally, the Express segment reported a same store sales decline of 0.8%. Management notes that this was driven by COVID-19 isolations. And while traffic flows increased with workers returning to offices and children returning to school later in the quarter, this was then offset by the flood events and global fuel price increases.

How does this compare to expectations

Goldman Sachs was expecting Coles to report comparable sales growth of 3.5% for the supermarkets business and 2% for the liquor business.

Given that the company ultimately reported growth of 3.9% and 2.8%, respectively, this could bode well for the Coles share price today.

Management commentary

Coles CEO, Steven Cain, acknowledged cost of living pressures and revealed that the company will be doing its part to ease the burden. He said:

“Coles Group remains focused on our commitment to deliver trusted value for Australian families amid growing cost of living pressures driven by both local and global supply circumstances. In particular, we have the widest range of great value and sustainable own brand products in Australia.

I want to thank our team members and suppliers for their continued hard work during the quarter to provide the best offer possible despite the impact of widespread flooding and record COVID-19 numbers. I would also like to thank our customers, community partners and state and federal governments for their help and generosity in supporting Coles’ efforts to assist communities impacted by flooding during the quarter.”

Outlook

Positively for the Coles share price, the company revealed that it has started the fourth quarter strongly.

It highlights that it “recorded a solid trading period with no COVID-19 related restrictions on traditional family events such as Easter” and that “availability continues to improve as the supply chain recovers.”

Looking ahead, COVID costs are expected to moderate as public health requirements are eased, but supplier input cost inflation is expected to continue in the fourth quarter and into FY 2023. However, Coles doesn’t appear to be planning to pass these costs on and will “continue to focus on providing trusted value for customers to ease the burden from cost of living pressures.”

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended 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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