Coles chief executive Leah Weckert has shrugged off the marked slowdown in comparative store sales growth in the first quarter of the new financial year, saying shoppers are snapping up cheaper fresh produce and Christmas treats like mince pies heading into the key holiday period.
Ms Weckert told The Australian Financial Review Coles has a strong plan for the holidays when she expects more consumers to eat at home to celebrate. She also flagged that Coles had a strong result with its Magical Builders Harry Potter collectables program a year ago, boosting sales.
“We think it’s a strong [first quarter] result, given what we were cycling last year, and we feel it’s setting us up well going into Christmas,” she said.
“At the moment, it’s all about lots of fresh produce because the prices are so great … with the level of deflation than we had 12 months ago, and that is the area where volumes are up the most.”
Coles posted a 3.6 per cent rise in first-quarter sales to $10.25 billion, underpinned by its supermarket business, with customers eating at home and looking for special offers amid pressure on household budgets.
Supermarkets’ revenue gained 4.7 per cent to $9.2 billion for the 13 weeks to September 24. Excluding tobacco sales – which continued to decline in line with industry trends – sales increased by 5.9 per cent.
Comparable sales grew by 4.6 per cent in the first quarter – a marked slowdown from 6.8 per cent in the fourth quarter of 2023. Rival supermarket group Woolworths on Wednesday reported comparative sales growth of 5.5 per cent down from 6.4 per cent in the June quarter of 2023.
Ms Weckert said that there were improvements in waste and markdowns in the first quarter. New technology such as smart gates and more security to help stem theft in stores is expected to be rolled out in more than 250 of the most affected sites by the end of this year.
Lower price inflation
The retailer in August flagged growing theft as a significant problem at the nation’s second-largest grocery chain.
“The early results from where the technologies are being rolled out are in line with our expectations,” she said. “From our perspective, this is a short-term problem.”
Ms Weckert said she expects the stock loss benefits to come through in the second half, and is looking to introduce other cost and margin optimisation initiatives.
Coles’ prices increased 3.1 per cent in the three months to the end of September, compared with a 5.8 per cent increase in the last quarter of the previous financial year. The lower inflation was due to falling prices of fresh foods, meat, seafood and baked goods.
Shoppers flocked to Coles own-brand products, and a fourth consecutive quarter of growth, with sales reaching $3.2 billion – a 9.4 per cent increase. Customers also continued to shift to healthier options, with sales from Coles own-brand health and lifestyle products growing by almost 30 per cent.
Supermarket online sales grew by 25 per cent in the first quarter, with penetration increasing to 9.1 per cent. Ms Weckert said Coles has made it easier for customers to search for specials online, adding new features in the app such “filter by lowest unit price”, which is popular with shoppers.
Coles’ liquor revenue increased just 1.8 per cent to $851 million in the quarter, helped by new store openings and online sales, which rose 32.2 per cent.
Ms Weckert said shoppers were buying cheaper beer, over craft brands. In wine, the growth in sparkling, prosecco and rose was offset by lower champagne sales. The ready-to-drink category also grew strongly.
Coles shares ended Thursday slightly higher at $14.98. The stock is down nearly 20 per cent in the past six months.
Penn joins board
JPMorgan analyst Bryan Raymond said in a note before the sales results that it was too early for capital investment in cameras and gates to be making an impact on stock loss.
“We would not expect a meaningful underlying shift in shoplifting trends in recent months given cost-of-living pressures are persisting,” he wrote.
MST Marquee analyst Craig Woolford said in a note that comparable sales growth in Coles supermarkets slowed more markedly than for Woolworths and its liquor business had a weak quarter.
“We expect small downgrades to earnings given the weaker trends are likely to continue into [the second quarter] and beyond as industry-wide inflation eases back,” he said.
Former Telstra boss Andy Penn will join Coles board as a non-executive director and be chairman of the audit and risk committee, effective December 1.
Coles chairman James Graham said Mr Penn would bring significant Australian corporate and customer-facing experience to the board.
“As a past chief executive of both Telstra and AXA Asia Pacific, Andy has a strong background in large corporations where the application of technology has assisted the repositioning and strengthening of businesses in competitive markets,” Mr Graham said.