The Coles Group Ltd (ASX: COL) share price is under pressure on Friday.
In morning trade, the supermarket giant's shares are down 3% to $17.11.
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Why is the Coles share price falling?
Investors have been hitting the sell button today after the company released a disappointing update on the development and construction of its automated customer fulfilment centres (CFCs) in New South Wales and Victoria.
The two CFCs, which are being developed and constructed by Ocado Group plc, are behind schedule and look set to cost more than planned.
According to the release, Coles has received notification from Ocado regarding delayed timing for the handover of the Victorian CFC. It advised that additional works are required to rectify construction issues with the grid identified during quality control processes.
In light of the above, the commissioning of the Victorian CFC will be delayed with the incremental ramp-up period now expected to commence in mid-FY 2025 (previously mid-FY 2024).
Whereas the New South Wales CFC is expected to be commissioned with an incremental ramp-up period commencing at the end of the second half of FY 2024. Previously it was expected to commence during the half.
What's the damage?
Management advised that the company will take a $120 million hit from these delays. It explains:
The impacts of the delays are likely to increase the project capital and operating expenditure by approximately $70 million and $50 million respectively, noting the additional capital investment will continue to be managed within the Coles capital expenditure envelope. Total capital expenditure is now expected to be approximately $400 million of which 55% has been incurred to the end of FY23, with the balance expected to be incurred in FY24 and FY25.
The Coles share price is now down 12% over the last 12 months.
