Coles Group Ltd (ASX: COL) shares will be watched closely next week when the supermarket giant releases its half year results.
Ahead of the release, let's look at what the market is expecting from the company on 21 February.
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What is the market expecting from the Coles half year result?
According to a note out of Goldman Sachs, its analysts expect first half group sales of $21,354 million, up 3.7% over the prior corresponding period. This comprises supermarket sales of $18,729 million, liquor sales of $2,014 million, and convenience sales of $611 million.
However, unlike rival Woolworths Group Ltd (ASX: WOW), which is expected to deliver strong earnings growth, Goldman Sachs expects Coles to report a decline in profits. It is forecasting underlying net profit after tax of $542 million. This will be a 1.3% decline over the prior corresponding period and driven by margin contraction. The broker explained:
From a margin perspective, we also expect COL to see ~10bps EBIT margin contraction in 1H23 on the back of lower GPM and higher implementation cost for supply chain transformation including Witron and Ocado. This is in contrast to ~30bps EBIT margin expansion we expect for WOW. Net net, we are looking for flat EBIT growth YoY for COL vs. +11% for WOW in 1H23. We are ~3.6% below Visible Alpha consensus EBIT for 1H23.
And while Goldman hasn't provided an interim dividend estimate, for the full year it is forecasting a 60.9 cents per share fully franked dividend. This will be down 1.1% year over year and could mean the interim dividend will be down by a similar percentage.
Finally, the broker has warned that if its forecasts are accurate, it could cause Coles shares to tumble. It concludes:
COL is currently trading at 23.3x FY24 P/E on vs. historical average of 21.6x, and is only at ~1x P/E discount vs. historical average of ~4x relative to WOW. We expect that a disappointment in 1H23 margins will result in stock underperformance.
