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Only three months into her new role, Coles boss Leah Weckert has had a baptism of fire for her first reporting season, as an underwhelming profit result and cost blowouts triggered the biggest fall in Coles shares since the pandemic outbreak in 2020.

Delivering the supermarket giant’s full-year results, the former Coles chief financial officer laid out her strategic plans for the year ahead and views of the food and grocery landscape, but analysts and investors were more focused on the bottom line amid fears worsening profitability in the June half would spill into 2024.

Described by one analyst as a “messy result”, Coles revealed rising costs from a massive spike in store theft, higher wages and costly delays in the construction of its automated fulfilment centres. At the core of investor panic was the fact that inflated costs at Coles had slashed profit margins even as sales lifted through the year.

Coles looks to have hit a brick wall since January. Analysts estimated that gross profit margin fell 200 basis points in the second half as the cost of doing business, which includes higher wages, superannuation benefits and a 20 per cent lift in stock losses (which covers store theft), was up as much as $332m compared to the second half of 2022. The recent increase in Victorian payroll tax is estimated to have an impact of about $20m per annum, while Coles last week announced costly delays to its commissioning of two automated fulfilment centres.

Originally said to cost $150m when former Coles boss Steven Cain signed the deal with British tech company Ocado in 2019, the Coles robotic warehouses are now likely to cost as much as $400m and be delayed by as much as a year. As Ms Weckert – who oversaw the supermarket for the last two months of fiscal 2023 – went through her first presentation to the market as CEO, shares in Coles tumbled.

The stock ended at its low for the day of $16.01, down $1.22 or 7.08 per cent, wiping more than $1.6bn from the supermarket’s market capitalisation.

It marked the biggest one-day fall since a 9.87 per cent drop in late March 2020 when Covid-19 lockdowns caused panic selling throughout the market.

Coles reported an annual profit of $1.098bn, up 4.8 per cent but below market consensus forecasts of around $1.124bn.

Profit from continuing activities fell 0.3 per cent to $1.042bn. Revenue for the period rose 5.2pc to $41.825bn.

The company declared a flat final dividend of 30c a share, payable on September 27.

Worryingly, despite rising food and grocery sales in the second half, there was a slide in margins for that business of around 60 basis points. It suggests that Coles earnings actually fell in the second half. With higher sales not flowing through to healthier profits, investors are worried stronger cost pressures heading into 2024 will persist and drag down profits further.

Some of the bearish sentiment now swirling around Coles is linked to worsening trading in the second half for its supermarkets divisions, where earnings were 9 per cent below consensus, according to some analysts.

Jarden analyst Ben Gilbert said the share price dive was directly linked to Coles missing consensus earnings and a softer performance in the second half, and that the weakness in its results had come from the supermarkets which were the key driver of valuation.

“And if you look at what’s behind the miss and how we can think about that going forward is costs are higher, theft is higher and both of those trends are going to continue until at least the first half of fiscal 2024, so people are starting to think about how to price that sort of risk in,” Mr Gilbert said.

“And then I think the other thing is the top line (sales) was still strong in the fourth quarter. I think sales were up 8 per cent in food, but margins still went backwards. Typically when you have stronger sales you get operating leverage, costs look to have offset that.

“So the question is what levels of sales do they need next year, can they grow next year.”

Meanwhile, Ms Weckert said Coles had seen the emergence of the “savvy shopper” who heavily researched prices, used online catalogues, loyalty points, frozen meals and bulk buys to eke out savings from their grocery budgets. She said younger families and people aged under 34 were under particular pressure and were much more focused on loyalty programs, doing infrequent shopping to create meal plans and sticking tightly to a budget as they counted the dollars and cents.

“What we are seeing is that across the board customers are economising in lots of different ways,” she said.

“We have seen more trade into areas in homebrand in a lot of staple areas, things like pasta and rice and the like has seen very, very strong growth in homebrand.”

The average household was now feeling the benefit of moderating inflation, but with fresh produce in deflation.

Total supermarket price inflation for the year was 6.7 per cent, having moderated in the second half. In the fourth quarter, total supermarket price inflation of 5.8 per cent was down from 6.2 per cent in the third quarter, with inflation in the fresh category of 2.3 per cent down by almost half from the previous quarter.

At its flagship supermarket arm, Coles recorded sales revenue of 6.1 per cent to $36.746bn, with growth in the second half up 7.7 per cent over the prior corresponding period, compared to 4.6 per cent in the first half. Volumes improved throughout the year, with volume growth moderately positive in the second half.

Online sales for the full year increased by 1.1 per cent to $2.8bn. Strong sales growth of 10.1 per cent was delivered in the second half, while sales in the first half declined by 6.6 per cent as Covid-19 behaviours normalised and some customers returned to shopping in store.

Supermarket earnings rose 2.9 per cent to $1.765bn.

Liquor sales revenue was broadly flat at $3.61bn, due to cycling Covid-19 elevated demand in the prior year.

Earnings fell 3.7 per cent to $157m.

Mondelez International has partnered with packaging manufacturer Amcor to invest in recycling tech company Licella, in support of a more sustainable supply chain.

The investment will help Licella build an advanced recycling facility in Victoria that uses its Catalytic Hydrothermal Reactor (Cat-HTR) technology.

The Cat-HTR technology uses hot pressurised water to continuously recycle end-of-life plastic into a crude oil substitute that can be used to create food-grade plastic packaging.

Through Amcor, the confectionery giant will gain access to recycled content for its soft packaging, significantly reducing its need for virgin plastic. 

Christine Montenegro McGrath, senior VP and chief global impact and sustainability officer at Mondelez, said there is a gap in sustainable recycling solutions, and the investment will scale the infrastructure and technology needed to create a more sustainable future for plastics.

“Our packaging strategy is focused on using better packaging and helping to build better systems,” said McGrath. 

The new facility is expected to process about 20,000 tonnes of end-of-life plastic per year, with plans to scale up to 120,000 tonnes per year.

Australia’s Treasury Wine Estates said on Tuesday it was well positioned to deliver growth in fiscal 2024 after the winemaker reported a 3.3 per cent fall in annual profit, mainly hurt by lower sales in the United States.

The Melbourne-headquartered company expects demand for luxury wine to grow globally this year, led by its Penfolds label, and with potential upside from improving relations between Australia and China.

However, luxury wine sales growth is expected to be modest in its highest revenue-generating segment, Treasury Americas, before picking up from 2025.

“Outlook commentary appears to support consensus forecasts for Treasury Wine with potential additional upside from improved China relations,” analysts at Jefferies wrote in a note.

Treasury said continued improvement in Australian and Chinese relations after a years-long diplomatic freeze could see a lifting of Chinese tariffs on Australian wine.

The world’s biggest standalone winemaker previously drew a third of its profits from China before anti-dumping and subsidy tariffs of up to 212 per cent were imposed on Australian wine, effectively ending sales, in 2020.

Treasury shares were up as much as 1.8 per cent during early trade, while the broader market was 0.4 per cent higher.

Australia’s largest wine maker reported a net profit after tax of A$254.5 million for the year ended June 30, compared with A$263.2 million a year earlier, with a fall in premium products shipments and low availability of luxury wines pressuring sales at Treasury Americas.

The wine maker had previously flagged challenging market conditions and a weak consumption outlook for its commercial-grade wine, especially in Australia and Britain, which it reiterated on Tuesday.

Treasury Wine declared a final dividend of 17 Australian cents per share, higher than last year’s dividend of 16 cents.

The company also said it had appointed John Mullen as its chairman. He will succeed Paul Rayner, who will leave the company on October 16.

Rayner had been associated with the company for more than a decade and started as a non-executive director of Treasury Wine since May 2011.

The Australian wine industry could grapple with years of oversupply, even if China’s anti-dumping tariffs are removed early, according to Rabobank’s Wine Quarterly Q3 2023 report.

Despite improving trade relations and the recent removal of China’s tariffs on Australian barley, Rabobank says even in a “best case scenario”, the wine industry may require at least two years to address its surplus. 

The Rabobank report said that Chinese anti-dumping tariffs on Australian wine have disrupted the wine industry, with exports decreasing 33 per cent over the past two years.

With the tariffs coinciding with substantial growth in production and logistics bottlenecks from Covid, the Australian wine industry is now dealing with inventory surplus and low price levels – particularly for commercial red varieties, said RaboResearch associate analyst Pia Piggott.

“So large is the current oversupply has the equivalent of 859 Olympic swimming pools worth of wine in storage,” explains Piggott. 

“That’s over two billion litres of wine or over 2.8 million bottles,” she said.

Crushed circumstances

In the late 2010s, the beginning of China’s piqued interest in red wine contributed to the Australian wine industry’s success, Piggott elaborated.

“Driven by sustained economic growth, rising incomes, as well as the social status of wine drinking and gifting, global wine imports to China grew at an impressive 18 per cent compound annual growth rate (CAGR) in the decade up to 2017 – when they peaked at 750 million litres – elevating China to be a top five wine importing nation globally,” she continued.

Following the China-Australia Free Trade Agreement in 2015, the wine tariff was reduced from 14 per cent to zero, which helped double China’s market share from 12 per cent to 24.

This event resulted in China becoming one of Australia’s strongest value markets for red wine varietals, making up 18 per cent of export volume and 40 per cent of export value at its peak.

However, Piggott explained that several anti-dumping tariffs and “soft bans” affected various products exported by Australia between 2020 and 2021, with the wine sector taking the most hit, losing one-third of export value from its peak in 2019.

“Unluckily, the tariff coincided with an exceptional growing season and Australia’s largest crush on record,” she added.

“Wine production for the ’21 vintage increased 36 per cent year on year, which would have, in any case, caused an oversupply.”

In addition, China’s wine market has been declining in recent years, Piggott continued, with consumption more than halved from its peak in 2017 to just 880 million litres last year.

“Chinese consumers began transitioning away from wine as part of a broader decline in alcohol consumption per capita. However, declines were greater for wine than beer and spirits,” she said.

Balance and profits

According to Rabobank, the Australian wine market will stay at a surplus for a “considerable amount of time”.

It also suggests that winery acreage needs to be reduced to rationalise assets throughout the supply chain over the next five years, which can return the industry’s balance and profitability. 

“For wineries, particularly those selling commercial wine, stocks will remain high for some time as businesses slowly work through selling inventory,” said Piggott. 

“While some brands have increased bulk shipments and been able to discount stock heavily, this will need to continue for some time to rebalance the market.”

For large retailers/investors with diverse income streams, she added that the current market provides ample buying opportunities as distressed vineyard/winery assets come up for sale.

“Through this, we can expect increased consolidation of vineyards and wineries as businesses invest in expanding their distribution,” Piggott concluded.

Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, one of the world’s leading specialists in food and agribusiness banking.

Endeavour Group chief executive Steve Donohue was on Wednesday night looking forward to a good turnout at his company’s hotels for the Matildas’ semi final against England.

Mr Donohue’s company owns the Dan Murphy’s and BWS liquor store chains, and has more than 350 hotels around Australia.

He is the latest of a number of executives this reporting season who say consumer spending is holding up better than expected after a year of interest rate rises.

In discussing his company’s results, which showed a rise in net profit for the year to June 30 of 6.9 per cent to $529 million, Mr Donohue used the word “resilience” several times when discussing the outlook for customer spending, assuring analysts that this was holding up into the first weeks of the new financial year.

“We are encouraged by the resilience in our trading performance,” he said.

“Whilst not immune to shifts in consumer sentiment and economic conditions, trading has been resilient across the final quarter of F23 and in the first six weeks of the new financial year,” he said of the company’s retail business.

Analysts were disappointed that the company’s results came in lower than the market’s expectations of around $543m and as a result its shares slid.

With interest rates still rising the market is watching closely for further signs of a slowdown in consumer spending.

The good news for Endeavour shareholders was that Australians are heading back to hotels to socialise, post Covid-19.

The company, which operates the ALH Hotel Group, sold 86,000 meals across its premises on Mother’s Day and reported it had sold 172,000 tickets to events over the year.

But sales from its retail outlets were affected by the big fall off in online alcohol sales which boomed during Covid-19.

The company’s e-commerce sales of alcohol jumped from $500m in the 2021 financial year to $1bn in the 2022 financial year but came down to $850m in the 2023 financial year.

Mr Donohue is not worried about this, and regards it as natural shift back from the Covid-19 period.

The results of the group, which is the largest owner of gaming machines in the country, are also affected by changing regulation of the industry which are being tightened around Australia.

Looking ahead, Mr Donohue said the company could do well in a more cost-conscious world, whereby consumers were opting for the Dan Murphy’s assurances of offering the lowest prices for alcohol and people would head to pubs for meals rather than expensive restaurants.

Signs that inflation and interest rates might be near their peak were helping to keep up confidence, heading off fears last year and earlier this year of the economy falling into a recession.

WAM Capital lead portfolio manager Oscar Oberg told a client briefing on Wednesday that the Australian market was already pricing a recovery in consumer-exposed stocks given that investors generally looked between 12 and 18 months ahead.

“Don’t get me wrong, the economy is going to have a very tough period, but all the feedback we get on the ground is we just need confidence,” Mr Oberg said.

“The consumer just needs confidence that rates are going to stabilise.

“From our perspective we’re not even looking for interest rates to fall, we just need them to stabilise and people can readjust their budgets and then start spending again.”

In the minutes of the latest Reserve Bank board meeting released this week, the central bank noted that the Australian economy was expected to grow “well below its trend pace” for the rest of this year. Growth was expected to trough at 1 per cent by the end of this year before gradually picking up to about 2.25 per cent by the end of 2025.

The RBA has been watching the fall in retail sales in June, but noted that this followed an increase in May – and that the volume of retail sales has been “essentially unchanged since September 2022”.

But it noted that the economic slowdown and higher interest rates was having very different effects on households, depending on their exposure to debt.

The relatively tight labour market had also put a floor on consumer confidence although wages were still growing.

But while a recession is not on the cards, the outlook is far from certain.

There have been quiet lay-offs across sectors such as financial, tech, and the building and construction industry – which have yet to play through into the broader economy.

The net impact for companies is the need for a critical focus on cost control going forward.

At its analyst briefing, Mr Donohue was quizzed about his company’s cost reduction plans.

The company’s profit rise came on the back of only a 2.5 per cent rise in sales to $11.9bn.

Mr Donohue was frank about his strategy. “We like to grow our bottom line faster than our top line,” he said.

This could be a mantra for the broader corporate Australia.

He pointed out that the company had made cost savings of $90m in the two years since its demerger from the Woolworths group and was targeting another $200m over the next three years.

With wages and other costs rising, the ability of companies to hold down costs would be a critical factor in underwriting profits in the year ahead.

The once-highly lucrative daigou market of Chinese shoppers buying and exporting infant formula is in the rearview mirror for A2 Milk, as the company continues to navigate around COVID-19 disruption and China’s declining birth rate.

A2 Milk on Monday revealed double-digit increases in net profits, earnings and revenue for the 2023 financial year. However, it also pointed out ongoing shifts in consumer habits in its core market in China, as parents move away from English-label baby formula (down 6.1 per cent) in favour of Chinese-label products (up 26.9 per cent).

Chief executive David Bortolussi said even though cross-border trading, freight availability and costs had improved, and more Chinese international students were returning to Australia, he anticipated the daigou channel to recover to just “half of what it was” in its pre-pandemic heyday.

“There [are] a lot of things that are conducive to a daigou recovery. Unfortunately, we’re not seeing a significant rebound in that,” Bortolussi said.

Amid a relatively tight labour market, Bortolussi said Chinese international students had plenty of options other than daigou shopping to supplement their income while studying in Australia. Meanwhile, Chinese parents were also increasingly opting to buy their infant formula online and in-store.

“I can be reasonably definitive about that: [the daigou channel] will not get back to the same size that it was,” Bortolussi said. “We’re hopeful that there may be a recovery but by no means are we dependent on that or planning for that to happen. That would just be a nice thing to occur for everybody.”

The $3.9 billion company has changed its daigou strategy a number of times: in late 2021, A2 Milk signalled it would reduce its reliance on daigou shoppers, but less than a year later planned to rebuild its daigou community, as the channel was “turning a corner”. Bortolussi’s comments on Monday indicate the shift away from daigou shopping looks more permanent.

He also warned of challenges ahead in the Asian country, where fewer babies are being born, competition is expected to tighten, and prices are expected to come under further pressure. A2 Milk’s strategy has been to ramp up advertising and marketing campaigns to raise brand awareness against a backdrop where China’s overall infant formula market size has shrunk 14 per cent.

China’s fertility rate – already one of the world’s lowest – dropped to a record low of 1.2 in 2022, which has prompted Beijing to introduce measures like financial incentives and better childcare facilities to address the problem.

A2 Milk’s net profit after tax lifted 26.9 per cent to $155.6 million for the 2023 financial year, while earnings rose 11.8 per cent to $219.3 million. Revenue increased by 10.1 per cent to $1.6 billion.

Despite revealing double-digit growth, A2 Milk’s numbers undershot some analyst expectations. The gloomy outlook did not inspire shareholders, who will not receive a dividend, and sent the company’s share price tumbling 13.6 per cent on Monday.

The company expects to notch $2 billion in revenue by the 2026 financial year and achieve “low single-digit revenue growth” for the 2024 financial year. The business will continue to be challenged by declining birth rates in China as well as an industry-wide transition of all Chinese-label brands to new infant formula standards, known as GB registration, which will put pressure on prices.

A2 Milk is taking steps to grow its presence in the US, South Korea and other Asian countries, and will develop products aimed at seniors to capture the ageing population in China.

Dairy company A2 Milk has reported a “strong” full-year result with double-digit sales and earnings growth despite challenging market conditions in China.

For the year to June 30, sales grew 10.21 per cent to $1.6 billion with tax-paid profit up 26.2 per cent to $144.8 million and EBITDA of $219.3 million, up 11.8 per cent.

Australia and New Zealand sales were down 30.2 per cent due to a change in distribution strategy while China & other Asia region sales grew 37.9 per cent. US sales were up 27.1 per cent and Mataura Valley Milk brand sales were up 9.2 per cent.

The company also grew sales and improve online platform rankings in China and English label IMF in Double 11 and 618 key sales events.

The business received approval from China’s SAMR for pre-registration of China-label IMF products and launched new products in all categories.

MD and CEO David Bortolussi described the results as a “remarkable achievement” despite a 14 per cent decline in the core China market.

“The China market has become increasingly challenging as a result of lower birth rates and increased competitive intensity. Notwithstanding, we are well-positioned to continue to invest and grow share in FY24 to emerge in a stronger position when the market recovers.”

ResMed’s decision a year ago to stockpile components to beat a pandemic-fuelled supply chain crunch allowed the company to keep up with demand for its sleep apnea machines but it has come at a cost.

Chief executive Mick Farrell says the company’s profitability is not where many analysts expect – even 12 months later.

“In the heat of the supply chain crisis, I just couldn’t get availability of semiconductors from the traditional suppliers and we were redesigning our products. We did all that,” Mr Farrell said.

“But then we bought components at a tough time and supply was tough, so we paid quite high prices. Freight rates 12 months ago were high, so all that inventory is now working its way through to our sold products … and when we sell them, we take the cost of what we purchased at.

“Twelve months ago, everyone said that was fantastic – freight rates are high, doesn’t matter, just take care of the patients. Now, they’re saying ‘but wait a second why isn’t profitability not where I want?” Well that’s why.”

ResMed’s revenue soared 23 per cent to $US1.1bn ($1.68bn) in the three months to June 30 as pandemic-induced challenges slipped further into the rear view mirror. But the result was slightly below analysts’ expectations.

The price of the company’s ASX-listed chess depositary interests fell 9.4 per cent to $30.67 on Friday, against a 0.2 per cent rise across the broader sharemarket.

Mr Farrell said “unconstrained availability of our market leading cloud connected flow generated platforms” had allowed the company to meet demand in its key global markets, with the exception of its latest product AirSense 11.

“We are ramping up and improving the availability of our best in class AirSense11 platform, which will gain further geographic regulatory approvals throughout the fiscal year and steadily increasing supply also throughout the fiscal year 2024 and beyond,” he said.

“Although challenges within the post-Covid supply chain haven‘t completely been mitigated yet, we expect ongoing steady improvement in component and end product supply in the quarters ahead.

For the full financial year, revenue surged 18 per cent to $US4.2bn, compared with analyst estimates of $US4.2bn. Meanwhile net profit vaulted 15 per cent to $US897.6m.

Wilson analyst Shane Storey said the company didn’t deliver the earnings beat that was expected. “Fourth results were broadly in line with our forecasts but 5 per cent below expectations in the US market hence the 9 per cent sell-off we see there in the aftermarket,” Dr Storey wrote in a note to investors.

“Investors should take advantage of this sell-off, following 4Q23 results. We are seeing another round of short-termism on the stock, bemoaning the gross margin impact of success.”

The company’s shares, which are also listed on the New York Stock Exchange, slumped from $221.23 to as low a $US199 in US trading before settling to $US219.95.

“We’d received feedback that AS11 (AirSense 11) ordering had improved in recent weeks but device supply may stay on an allocation basis for the next few quarters,” Dr Storey said.

“US device sales grew 25 per cent and this outperformance continued to weigh on GM (gross margin) mix, as did securing componentry for a planned AS11 acceleration.

“Competitive dynamics continue to weigh in ResMed’s favour, but the risk of things suddenly changing – Philips re-entry … remain a dampener on sentiment until AS11 remobilisation is realised.”

In January last year, Mr Farrell said the pandemic-induced supply chain crunch was limiting a windfall of up to $US350m that the company expected to reap from a product recall from rival Philips. Nevertheless, in August last year ResMed’s net profit surged 64 per cent as it reaped a windfall of up to $US70m from Philips’s recall.

Asked if ResMed could maintain its edge over its rival as Philips returned products to key markets, Mr Farrell believed it could.

“I think the reputation hit and the time to market is going to be a very slow progress for them, country by country.”

ResMed’s earnings per share for the year to June 30 jumped 11 per cent to $US6.44 versus analyst estimates of $US6.52.

Gross margin contracted 80 basis points to 55.8 per cent. Mr Farrell said he could “reverse engineer” the company’s margin by slowing product sales.

“But we’re not going to do that when a patient needs care,” he said.

“I will never turn down a patient if there‘s demand for a patient. We‘re going to take care of them, even if it’s a slightly lower gross margin. And by the way, it is really good gross profit dollars and we get to take that cash flow, as you saw a really strong cash flow in the quarter, and reinvest it in R&D.

“We continue to significantly grow our impact each quarter, improving over 160 million lives in the last 12 months, well on our way to helping 250 million lives in 2025.”

The company will pay a quarterly dividend of US48c per share on September 21.

Anna Croft has been appointed as Coles’ new chief commercial officer, effective January next year.

Croft is the current COO of Mecca Brands where she helped transform the retailers’ business operations for health and beauty.

She comes with 20 years of industry experience and has worked with leading retailers such as Tesco, Coles, Mecca Brands and WHSmith in the UK and Australia.

Coles CEO Leah Weckert said she is delighted that Croft is returning to Coles with significant leadership experience in both local and international retail.

“Anna will play an essential role with our team and suppliers to deliver exceptional quality products, innovative exclusive brands and convenient meal solutions for our customers at a great value.”

Casual brand Crocs has reported record quarterly sales of more than US$1 billion, reflecting a 12 per cent increase in constant currency terms over the previous year.  

The company’s growth was driven by Asia, where sales increased by 33.2 per cent, or by 39 per cent on a constant currency basis, and North America where direct-to-consumer (DTC) comparable sales grew by 12.9 per cent year on year.

Revenue of $160.1 million from Europe, the Middle East, Africa, and Latin America decreased by 0.2 per cent or 1.4 per cent when measured in constant currency.

“We achieved record quarterly revenues of over $1 billion, representing growth of 12 per cent on a constant currency basis to prior year,” said Andrew Rees, CEO. 

“Both the Crocs and HeyDude brands continue to gain share and bring in new consumers with our comfortable offerings, as evidenced by DTC growth of 26 per cent in the second quarter. We continue to invest behind our strategic priorities that are driving profitable growth.”

The business anticipates a consolidated sales increase of 12.5 per cent to 14.5 per cent in the third quarter of this year compared to 2022, translating to revenues of roughly $4 billion to $4.065 billion at exchange rates as of the end of the most recent reported period.