The Coles Group Ltd (ASX: COL) share price is under the spotlight today after the company announced its result.
The report is for the period ended 25 June 2023.
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Coles share price in focus on mixed FY23 numbers
- Continuing operations sales revenue grew 5.9% to $40.5 billion
- Continuing operations earnings before interest and tax (EBIT) increased 1.8% to $1.86 billion
- Continuing operations net profit after tax (NPAT) fell 0.3% to $1.04 billion
- Continuing operations earnings per share (EPS) fell 0.6% to 78.1 cents
- Total NPAT increased 4.8% to $1.1 billion
- Total dividend per share up 4.8% to 66 cents
Coles Express was sold to Viva Energy Group Ltd (ASX: VEA) for $300 million of proceeds, plus there was a $19 million working capital adjustment. Due to this, Coles Express was classified as discontinued operations.
Supermarket EBIT increased by 2.9% during the year to $1.77 billion, but liquor EBIT declined 3.7% to $157 million and 'other' EBIT worsened by 23.5% to a loss of $63 million.
Despite the improving sales, continuing net profit was challenged by inflationary cost pressures and major project implementation costs.
Major project implementation operating expenditure of $58 million was incurred during the year in relation to the two automated distribution centres and two automated customer fulfilment centres (CFCs).
Financing costs for continuing operations increased by 9.4% to $394 million, with higher borrowing costs.
What else happened in FY23?
There have been delays in the construction of the CFCs with Ocado. The ramp-up for the Victoria CFC is now expected to commence in mid-FY25, while the NSW CFC ramp-up is expected to commence at the end of the second half of FY24. Coles said this is likely to "increase the project capital and operating expenditure by approximately $70 million and $50 million respectively." The Coles share price dropped over 3% in the two days after this news.
The business was able to tell investors that it achieved its 'smarter selling' target of $1 billion of cumulative benefits across a four-year program, including approximately $220 million in FY23. That included energy consumption measures in-store and the use of advanced analytics and store-specific data to calculate optimal markdown rates.
With this result, Coles could also tell investors about its FY23 fourth quarter, with 8% sales growth in supermarkets and 2.9% sales growth in liquor. The fourth quarter also saw 13.1% exclusive (to Coles) brand sales growth.
FY23 inflation for the supermarket business was 6.7%, with 5.8% inflation in the fourth quarter.
What did Coles management say?
The new Coles CEO Leah Weckert said:
Since demerger, our strategy has been to invest, innovate and drive sustainable growth for Coles. This past year we opened our first Automated Distribution Centre, achieved our target of $1 billion in benefits through our Smarter Selling program, divested our Coles Express business to allow greater focus on the core, opened or refreshed more than 300 stores and brought hundreds of exciting new products to market.
Cost of living is the number one focus for our customers right now and we continue to invest in providing value through 'DROPPED & LOCKED', everyday trusted pricing, weekly specials, Flybuys and our exclusive brand portfolio. These initiatives are resonating with customers and we remain well positioned to grow in the current environment as more customers choose to eat at home.
What's next for Coles?
The company said that headline inflation has "continued to moderate", however inflation in the categories of bakery, grocery and dairy "remains consistent with the fourth quarter".
Coles also said that 'stock loss' is a priority and it's taking immediate actions to address this, including accelerated investment in technology and increased security at 'high risk' stores.
It pointed to increasing costs, with the Victorian payroll tax costing approximately $20 million per annum, and the recent Fair Work Commission wage increase leading to store remuneration rising by 5.75%.
In the early part of FY24, supermarket volumes have remained "modestly positive", with early signs of customers "shifting from out of home dining".
In FY24, it's expecting to open 15 new supermarkets, close six and renew 50. In liquor, it's expecting to open approximately 20 new stores, close six and renew more than 100 stores.
In the longer term, it's expecting to grow its exclusive brand portfolio, benefit from population growth and in-home consumption, and improvements to its supply chain.
Coles share price snapshot
Before the release of this report, the Coles share price was up 4.7% in 2023, while the S&P/ASX 200 Index (ASX: XJO) had risen 2.4%.
