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Q1: Coles (ASX:COL) reveals strong growth in FY21

Coles Group Ltd (ASX: COL) has released a trading update for the first 17 weeks of FY21. The Coles share price is up in reaction.

Strong first quarter for Coles

The supermarket business reported that its total first quarter sales increased by 10.5% to $9.6 billion.

Looking at the individual segments, Coles supermarkets grew revenue rose by 9.8% to $8.46 billion, with Victoria driving sales growth with the introduction of restrictions. Liquor sales went up 17.4% to $852 million and Coles Express sales increased 10.3% to $291 million.

Coles is seeing strong online growth. Supermarkets saw online growth of 57% and liquor saw online growth of 80%. That’s quite extraordinary considering this was months after the initial lockdowns.

The company is working on a number of initiatives to grow profit.

It is shifting to an online catalogue, which has reduced the number of printed catalogues by 4.6 million per week. It also continues to increase its number of stores with click and collect (to the boot of a car), growing by 14% to over 450.

Coles is launching more own brand products. It added another 680 products and own brand sales rose 12.6%.

It has been working on digitising and automating some of the processes at its distribution warehouses. In Queensland the Witron automated distribution centre is progressing with automation technology starting to be installed in the second quarter. The remaining approvals for the NSW site is expected to be finalised in the second quarter.

Construction on the Ocado online customer fulfilment centre in Melbourne is progressing. The development approvals are in place for the Sydney online customer fulfilment centre with construction commencing in the second quarter.

Time to buy Coles shares?

In the first four weeks of the second quarter, supermarket comparable sales grew by 6.4%, or 5.4% excluding Victoria. Online sales increased by 45% as demand eased in Victoria. Liquor comparable sales grew by 16.9%.

Coles is confident about a number of trends with more travel likely as state borders open up and more at-home consumption due to COVID-19 effects.

It’s a defensive business that’s delivering good growth levels. Will some of it unwind once COVID-19 is no longer an issue? Perhaps. There are other ASX dividend shares I’d rather buy first like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).

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

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