Coles share price lifts on 'impressive' earnings beat

The supermarket giant posted a 17% jump in profits for the first half.

Key points
  • The Coles share price is gaining on the release of the company's first-half earnings, rising 0.6% to $18.415
  • It comes as Goldman Sachs dubs the company's supermarket business' EBIT margin 'impressive'
  • Though, it wasn't impressive enough to convince the broker to upgrade the stock from its previous sell rating

The Coles Group Ltd (ASX: COL) share price is in the green on Tuesday following the release of the company's first-half earnings, as The Motley Fool Australia reported earlier.

The S&P/ASX 200 Index (ASX: XJO) supermarket operator's latest announcement has beaten the expectations of top broker Goldman Sachs.

The Coles share price opened slightly higher at $18.32 before peaking at $18.55 – marking a 1.37% gain.

Right now, the stock is swapping hands for $18.415 apiece – 0.63% higher than its previous close.

Let's take a closer look at the response to the S&P/ASX 200 Consumer Staples Index (ASX: XSJ) favourite's earnings.

Man racing shopping trolley through supermarket likes coles or woolworths

Image source: Getty Images

Coles share price gains as profit jumps 17%

The Coles share price is outperforming on Tuesday as the company's earnings surprised on the upside.

The company posted $643 million of total net profit after tax (NPAT) – a 17.1% year-on-year improvement. It also revealed $21.4 billion of total sales revenue – a 15.1% jump, including non-continuing operations – and $1.1 billion of total earnings before interest and tax (EBIT).

Its supermarkets division saw EBIT jump 10.6% to $991 million at a margin of 5.3% – a 28 basis points improvement.

That leaves its margin 43 basis points higher than Goldman Sachs expected – an outcome the broker dubbed "impressive" and noted was mainly due to the business' better-than-expected gross profit margin.

Though, it wasn't enough to convince analysts. The broker still rates Coles shares a sell with a $14.90 price target – a potential 19% downside.

It also tips the supermarket to post $41 billion in revenue for financial year 2023.

Looking forward, Coles expects inflation to moderate from the December quarter – when its supermarket saw 7.7% inflation. However, it also anticipates the cost of living pressures could hit Aussies' wallets, saying:

With the largest Own Brand portfolio in Australia, 'DROPPED & LOCKED' prices, and Australia's favourite loyalty program, Flybuys, we are well positioned to meet the increasingly diverse requirements of our customer base.

Finally, Coles announced Leah Weckert will be the first woman to lead the 109-year-old supermarket when she steps up to the top job later this year.

Current CEO Steven Cain will hand over the reins in May, remaining with the company for an interim period before retiring.

Commenting on Weckert's appointment, chair James Graham said:

Leah has an outstanding track record of leadership and driving change inside Coles across key operating areas of the business.

I am confident that Leah will maintain the focus of Coles in driving our strategy, building trust with all stakeholders and growing long term shareholder value.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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