Coles’ interim net profit dives

Sue Mitchell

Feb 18, 2020

AFR

Coles’ net profit fell 33.7 per cent to $489 million in the December-half as modest earnings growth in supermarkets was offset by weaker profits from liquor and convenience stores after the restructuring of its hotel and fuel businesses.

Underlying earnings before interest and tax for the 27 weeks to January 5 rose 0.4 per cent to $725 million, in line with Coles’ guidance for EBIT between $710 million and $730 million.

Coles upgraded guidance earlier this month after stronger than expected food sales and one-off property and insurance gains offset weaker margins in liquor.

Sales fell 5.7 per cent to $19.1 billion, largely due to Coles’ new fuel alliance with Viva Energy, as a result of which it shifted to reporting commission income rather than fuel sales. This was partially offset by higher sales in supermarkets and liquor, which were helped by an additional six days of trading.

Supermarket EBIT rose 5.7 per cent to $637 million, while liquor earnings fell 9.9 per cent to $67 million and convenience profits plunged 92 per cent to $4 million following the new supply regime.

Supermarket earnings were also boosted by the release of a $15 million provision for workers compensation and profits of $33 million from property sales, about $15 million of which was pulled forward from the June half. This was well ahead of the $7 million in property gains booked in 2019.

Coles chief executive Steven Cain is aiming to restore profit growth by 2021 by slashing costs by $1 billion over four years and increasing sales as fast as the broader market.

The retailer has been reducing everyday shelf prices and expanding its private label range while tapping demand for convenience from wealthier shoppers by selling a wider range of grab-and-go foods and prepared meals and ramping up its online business.

Coles will pay an interim dividend of 30¢ a share on March 27.  It didn’t pay one in the year-ago period.

Coles shares have risen about 36 per cent over the last 12 months, reaching an all-time high of  $17.18 earlier this month, compared with their $12.75 close in November 2018, when the company listed after a $20 billion demerger from Wesfarmers.