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Coles delivers tasty first-half numbers for shareholders
The first-half numbers for Coles (ASX:COL) to December 31, 2024, were solid, with sales ahead 3.7 per cent to $23 billion, outstripping its major rival Woolworths – the latter was plagued by industrial trouble before Christmas – which could only increase revenue 2.7 per cent.
Coles’ underlying earnings before interest and tax (EBIT) from continuing operations increased 8.9 per cent to $1.2 billion, while underlying net profit after tax (NPAT) rose 6.4 per cent to $666 million, excluding significant items.
For shareholders, there was an interim dividend of 37 cents a share, up 2.8 per cent from the previous corresponding period, signalling confidence in the company’s financial position despite current market challenges. Over the past year, they have enjoyed a 14 per cent lift in the share price that closed at $19.01 on Tuesday.
Coles, which is moving head office from Hawthorn East to Melbourne’s Docklands in 2027, got the best performance from its supermarket division, where sales revenue increased 4.3 per cent to $20.6 billion. Excluding tobacco, supermarket sales grew by a more impressive 5.6 per cent, reflecting the ongoing shift away from tobacco products.
Underlying EBIT rose 11 per cent to $1.17 billion, with underlying EBIT margin increasing by 34 basis points to 5.7 per cent, an improvement attributed to several factors, including a 39-basis point improvement in total loss compared with the previous corresponding period, benefits from the company’s Simplify and Save to Invest program and growth in Coles 360 retail media income.
A significant highlight was the supermarket division’s eCommerce performance, with sales growing 22.6 per cent and penetration reaching 10.7 per cent, demonstrating its successful digital transformation initiatives.
The liquor division faced more challenging conditions, with sales revenue increasing by just 0.8 per cent to $2 billion, reflecting subdued discretionary spending in the face of economic pressures.
No doubt an improving economy will buoy the supermarket heavyweight’s earnings. Significantly, it reported that supermarket sales revenue grew 3.4 per cent in the first seven weeks of the third quarter (January-March 2025), while liquor sales revenue grew 3.8 per cent, indicating continued positive momentum despite ongoing economic challenges.
That’s on the commercial front. But Coles (and Woolworths) are by no means out of the woods politically. Both are committed to cutting their product ranges in a move that will anger suppliers – and Canberra. Concurrently, the Australian Competition and Consumer Commission (ACCC) has examined the market power of Coles and Woolworths, and how they exert financial pressure when dealing with suppliers, with its report now believed to be with Treasury.
What could inflame an already tense relationship between the two major supermarket chains and Canberra is the fact a federal election is looming. National Party leader David Littleproud has said reducing the number of products just removes competition. “That’s what they’re trying to do. This isn’t about anything other than Coles getting bigger margins at Australians’ expense by reducing competition.”
It’s not just Littleproud who has taken Coles and Woolworths to task. Opposition leader Peter Dutton called for a boycott of Woolworths for not selling Australia Day items in 2024, all suggesting a historically more pro-business Coalition Government could be even more problematic for the two supermarket giants.
Labor argues that the changes it has implemented – they follow a review by former Labor minister Craig Emerson – will give suppliers more protection. Andrew Leigh, the Assistant Minister for Competition, argues they will effect the biggest change in the power balance between supermarkets and suppliers for the past couple of decades.
But in a superheated election campaign, both retailers would be wary of either political party trying to make political hay at their expense, especially in the wake of the ACCC interim report into supermarkets that found many Australians have lost trust in Coles and Woolworths. Somewhat like the banks, they have become a convenient whipping boy for politicians looking to score a cheap headline.
The political reality is that whoever wins the Treasury benches, both Coles and Woolworths will remain under enormous political pressure to lower prices. And lower prices mean lower profits.
Coles’ interim results demonstrate the ability to execute its core strategy while navigating economic headwinds, with its investment in digital capabilities, supply chain infrastructure and store-specific ranging positioning it for future growth despite ongoing market challenges.
In that environment, investors should reap increased dividends and a higher share price – provided Coles (and Woolworths) don’t get caught in Canberra’s crosshairs.
