The Coles Group Ltd (ASX: COL) share price is falling on Tuesday morning.
At the time of writing, the supermarket giant's shares are down 1% to $16.10.
Why is the Coles share price falling?
Investors have been selling the company's shares today after it released its third-quarter sales update.
According to the release, Coles delivered further strong sales growth during the three months ended 31 March thanks to its supermarkets business.
Sales revenue from continuing operations rose 6.4% to $10,033 million for the quarter. This reflects a 5.1% jump in supermarkets sales to $9,065 million, which offset a 1.9% decline in liquor sales.
Coles Group's CEO, Leah Weckert, was pleased with the quarter. She said:
We have delivered another solid sales result across our supermarkets this quarter reflecting strong execution of our trade plans and our continued focus on delivering great value and great quality alongside improved availability. We have also seen a meaningful increase in customers interacting with our digital platforms and loyalty programs which is allowing us to engage on a more personalised basis with these customers. I'm also pleased to report that we are delivering on our commitment to address loss with a positive trajectory throughout the quarter.
Supermarket growth
Supermarkets sales revenue grew 5.1% to $9.1 billion for the third quarter, with comparable sales growth of 4.2%. Excluding tobacco, sales revenue increased by 6.6% over the prior corresponding period.
Management advised that its momentum from the first half continued into the third quarter thanks largely to the successful execution of the Summer value campaign.
In addition, this was supported by well-executed trade events in store and online. This includes Australia Day and Valentine's Day, and the Pokémon Builders collectible campaign.
Strong trade in the lead-up to Easter also supported sales, with Easter falling earlier in 2024 compared to the prior year.
Coles, which has been accused of price gouging, revealed that providing value for customers remained a priority during the quarter. In addition to its summer value campaign, where prices were lowered on more than 300 products, the Coles Simply range was expanded.
Another key to its success was its focus on exclusives. Its Exclusive to Coles revenue increased by 8.8% to $3.1 billion with strong volume growth. The portfolio continues to outgrow proprietary products on a volume and sales basis as consumers seek value.
Liquor struggles
Things weren't quite as positive for the company's liquor business.
Liquor sales revenue of $786 million for the third quarter declined by 1.9% and comparable sales declined by 3.1%.
This reflects customers reducing their discretionary spend on liquor in response to economic pressures and the business continuing to transition away from less profitable bulk sales.
How does this compare to expectations?
Goldman Sachs notes that the result was in line with expectations. It said:
COL reported 3Q24 largely in-line sales with total continuing group sales of A$10.03B (+3.4% YoY, +0.2% vs GSe), comprised of A$9.1B supermarket (+5.1% YoY, -0.1% vs GSe) and Liquor A$786mn (-1.9% YoY, +0.2% vs GSe).
Judging by the Coles share price weakness, it seems that some investors were expecting the company to outperform expectations.
Outlook
The key supermarkets business has had a "positive" start to the fourth quarter.
In addition, the company is "addressing loss which is expected to continue in the fourth quarter. The impact on the loss rate is in line with expectations."
However, the Liquor business is expected to continue being impacted by subdued discretionary spending. In the early part of the fourth quarter, its sales performance has been broadly in line with the third quarter.
Commenting on its outlook, Weckert said:
We remain committed to providing our customers the best possible value on their grocery bills. We are well positioned in the current economic environment as we continue to invest in value, including through our Autumn value campaign with the prices lowered on 300 products in store and online. Our recently launched KitchenAid Ovenware campaign provides additional value to customers who will be cooking more at home through the cooler months. Looking forward, I believe that the opening of our Kemps Creek Automated Distribution Centre and our two CFCs will be yet another step on our road to improving operating efficiency and differentiating our offer.
The Coles share price is down 12% over the last 12 months.
