Coles flags weaker early second-quarter sales as competition pressures shares

Highlights

Coles' supermarket sales growth slowed to 3.6% in the first quarter, with early second-quarter growth trailing the 5% Visible Alpha consensus.
Coles shares fell as much as 12.8% to A$20.47 after competitors' heightened promotions pressured sales and raised investor concerns over weaker growth.
Jefferies notes Coles' Q1 sales growth lagged Woolworths' 6.1%, and Coles expects first-half supermarket EBIT to be flat amid higher fuel costs.

Sales slowdown and company response

As reported by Reuters, Coles said heightened promotional activity by competitors is hurting early second-quarter sales as shoppers compare prices more actively across retailers and channels. The company said customers are making greater use of promotions and loyalty programmes to manage household budgets.

Supermarket sales growth slows in the first four weeks of the second quarter from 3.6% in the first quarter, missing a Visible Alpha consensus forecast of 5% for the quarter. In its supermarkets division, first-quarter sales revenue rises 3.6% to A$10.32 billion, slightly below the A$10.39 billion estimate.

Coles says it is taking deliberate actions to strengthen momentum, including relaunching its Every Day Price programme, which locks in lower prices on selected products for at least six months. The grocer also launches its exclusive Christmas range, featuring products available only through its supermarkets.

Market reaction and margin pressures

Shares in Coles fall as much as 12.8% to A$20.47 by 2353 GMT, marking the stock's worst intraday session and leaving it among the weakest performers on the S&P/ASX 200 index, which rises 0.7%. The move reflects investor concern that competitive pressure is weighing on growth more heavily than expected.

Jefferies says in a note that Coles' supermarket sales growth trails rival Woolworths' 6.1% growth and its 6.9% increase in total sales, suggesting Coles continues to lose market share after Woolworths' Ooshies campaign. Coles also flags higher fuel-related costs in the first half because of increased fuel prices over the past two months and says first-half supermarket EBIT is expected to be in line with the prior corresponding period.

The decline in liquor sales revenue in the early part of the second quarter is broadly in line with the first-quarter drop of 1.3%, the company adds. For the three months ended September 27, Coles reports total group sales revenue of A$11.21 billion, below Visible Alpha's estimate of A$11.31 billion, compared with A$10.96 billion a year earlier.

Our earlier article on the spike in crude oil shipping costs explained how conflict-driven disruptions on key tanker routes are pushing freight and insurance expenses sharply higher, making transport a much larger share of the oil price. We also noted that these higher logistics costs can filter through from the fuel pump into broader consumer prices and squeeze businesses that depend on transport-intensive supply chains.

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