Coles Group Ltd (ASX: COL) shares have risen 5.71% in 2024 to date, while the S&P/ASX 200 Index (ASX: XJO) has risen by 2.33%. The recent strength of its sales performance may mean the business is one to watch in FY25.
The company's update for the third quarter showed supermarket sales rose 5.1% year over year to $9.06 billion, which was faster growth than Woolworths Group Ltd's (ASX: WOW) recent FY24 third-quarter sales growth.
Coles' CEO Leah Weckert said the sales performance reflected "strong execution" of its trade plans and "continued focus on delivering great value and great quality alongside improved availability." Coles has also seen a "meaningful" increase in customers interacting with its digital platforms and loyalty programs.
Outlook
When Coles gave its third-quarter update on 30 April 2024, it provided some outlook commentary that I think could be useful and applicable to Coles shares for at least the first few months of FY25 unless conditions dramatically change.
The company said in the early part of the fourth quarter, supermarket volumes remained "positive", underpinned by value campaigns and strong execution.
It has continued to see deflation in fresh produce and meat, and a moderation in inflation across its broader packaged categories which is "pleasing" for customers under the current economic conditions, according to Coles.
Coles also said it had made good progress in addressing loss (such as theft), which is expected to continue in the fourth quarter.
In liquor, discretionary spending is "expected to remain subdued".
Coles CEO 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.
Analyst forecasts for Coles shares
The broker UBS has forecast that Coles could generate $43.8 billion in sales, $1.97 billion of earnings before interest and tax (EBIT) and $1.07 billion of net profit after tax (NPAT) in FY24. UBS also suggests Coles could pay an annual dividend per share of 72 cents for FY24.
The broker expects growth for Coles' financials in FY25, with a prediction of $44.3 billion in sales, $2.1 billion in EBIT and $1.15 billion in NPAT.
UBS also predicts the company could pay an annual dividend per share of 75 cents in FY25. UBS has a price target of $18.25 on Coles shares, which implies the Coles share price could rise around 7.16% in the next 12 months.
