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Coles (ASX:COL) share price on watch with FY20 report

The Coles Group Limited (ASX: COL) share price will be under scrutiny today as the supermarket business announced its FY20 report. The Coles share price is up 0.5%.

Coles FY20 result

Coles announced that its sales revenue increased by 6.9% to $37.4 billion with growth across all of its segments. The supermarket business said it achieved its 51st consecutive quarter of Coles supermarket comparable sales growth, with a rise of 7.1% in the fourth quarter.

Pleasingly, Coles said it achieved more than $10 billion in own brands sales, which grew by 10% for the year and contributed almost a third of supermarket sales in fourth quarter with more than 1,850 products launched during the year.

In the fourth quarter liquor comparable sales grew by 20.2% and express convenience comparable sales growth was 8.3%.

EBIT (click here to learn what EBIT means) rose by 4.7% to $1.39 billion on a pre lease accounting (AASB 16) basis. Statutory EBIT was $1.76 billion.

Net profit after tax (NPAT) increased by 7.1% to $951 million on a pre lease accounting (AASB 16) basis. Statutory NPAT was $935 million.

The company said it achieved cost savings of more than $250 million as it used more technology. It removed 450 roles at its store support centre, established transport hubs in Victoria and NSW to optimise logistics, improved its labour productivity, reduced energy and waste and made investments to reduce losses in store.

Coles continues to work on its Witron automated distribution centre in Queensland. The NSW distribution centre is now at the approvals stage.

Coles dividend and balance sheet

The Coles board decided to increase the ordinary final dividend by 14.6% to 27.5 cents.

Net debt reduced by $158 million. The weighted average debt maturity was 5.6 years at 28 June 2020 with undrawn facilities of $2.18 billion.

Both inventory and payable days increased compared to last year. Coles said this reflected the recognition duties and taxes on tobacco inventory, and the exclusion of fuel inventory and payables for FY20 due to the implementation of the new agreement with Viva Energy Group Ltd (ASX: VEA).

Outlook

Coles said in the first six weeks of the first quarter of FY21, sales were broadly in-line with what was achieved in the second half. But there has been significant variation in performance between different states. Sales have been strong in Victoria, which is driving online sales.

Liquor sales have remained elevated and in Express average weekly fuel volumes are broadly in line with June.

However, in the last four months of FY21 the company will be facing the elevated COVID-19 sales, so it may find it difficult to deliver growth.

As a supermarket business, Coles offers fairly defensive earnings and a pretty reliable dividend. But there are other ASX dividend shares I’d prefer to buy – and they aren’t trying as expensively like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

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At the time of publishing, Jaz owns shares of WHSP.

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