The Coles (ASX: COL) share price is falling after the supermarket company released an update to the market this morning.
What is Coles?
Coles was split from the broader Wesfarmers conglomerate (which owns Bunnings Warehouse) in November 2018 after 10 years of ownership. However, the Coles name has operated in Australia for 100 years. Today, Coles is one of the largest retailers in the country, serving 21 million customers per week across its supermarkets, Coles Express, Online, Vintage Choice and others.
Coles update
Coles announced its third quarter sales update today, which covers the 12 weeks from 6 January to 29 March 2020.
Total third quarter sales revenue rose by 12.9% to $9.2 billion with comparable sales growth of 12.4%.
Looking at the individual divisions, Supermarkets increased revenue by 13.8% with comparable growth of 13.1%. Liquor revenue grew by 6.1% with comparable growth of 7.2% and Express (convenience store) revenue rose by 5% with comparable growth of 4.3%.
Coles announced that during the quarter it had introduced more than 260 ‘Own Brand’ products during the quarter. It has also entered into an agreement to purchase Jewel Fine Foods which is one of Australia’s largest ready-meal facilities.
It continues to work on its contract with Ocado and construction of the Witron distribution centre in Queensland continues.
Higher costs
With all of the extra demand, Coles had to recruit more than 12,000 casual team members to deal with the strong sales.
It also had to open three ‘pop-up’ distribution centres in NSW, Victoria and Queensland.
Due to the scenes in supermarkets, Coles had to spend more on security. It has also spent more on cleaning as well due to the obvious healthcare risks.
Outlook
Coles said that comparable sales growth has broadly trended back towards pre COVID-19 times. There has been a bit of price inflation, but Coles is having to spend and shoulder some costs.
It said it recognises there will be higher unemployment for some time and value will be important for customers. Operating capital expenditure is now expected to be between $750 million to $850 million.
The higher demand seems to be over, I can’t foresee the Coles share price going much higher than today in the short term. I’d rather go for these ASX technology shares:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
