The Coles Group Ltd (ASX: COL) share price went down 2.6% today in reaction to the company’s FY23 first quarter update.
Let’s review what the business revealed.
Coles FY23 first quarter
The supermarket business said that its total sales revenue grew by 1.3% in the first quarter of FY23 compared to the first quarter of FY22. Total sales for FY23 Q1 were $9.89 billion.
Supermarket sales increased by 1.6% to $8.77 billion. Liquor sales declined by 4.3% to $836 million. Coles Express sales jumped 8.4% to $284 million.
Compared to three years ago, before COVID-19, total sales revenue was 13.7% higher.
Coles announced a number of interesting statistics. It said that its three-year e-commerce supermarket sales had grown by 105% and e-commerce liquor sales had grown by 348%.
In terms of the amount of e-commerce sales in this latest quarter, 7.6% of supermarket sales were through e-commerce and 6% of liquor sales were e-commerce (including Coles online).
What about inflation?
Coles said that supermarket inflation
was 7.1%. A year ago, the inflation was minus 0.3%.
The inflation was driven by ‘fresh’ with inflation of 8.8%, bakery prices were driven higher by increased wheat prices, and fruit such as berries and bananas saw strong inflation.
For me, inflation isn’t necessarily a bad thing for Coles. If it can maintain its margins, then higher prices and higher total revenue should result in higher earnings.
However, Coles reported that supermarket inflation was 7.1%, yet supermarket sales only grew by 1.6%.
Outlook for the Coles share price
Coles said that the strength of sales, volumes and transactions have continued into the second quarter of FY23 with improvements in availability and the introduction of new value campaigns, including ‘dropped and locked’.
However, Coles also revealed that “inflation is expected to increase in the second quarter, given the ongoing level of supplier CPI requests as well as further flooding impacting supply volumes.
However, it’s also seeing costs increase in terms of logistics and fuel costs, salary and wages, and construction costs on capital expenditure projects.
It’s expecting its depreciation and amortisation cost to be $1.7 billion in FY23.
Final thoughts
With the Coles share price close to its 52-week low, I think it could be an interesting point to think about the supermarket business. People will need to keep buying food, so I think its earnings will remain resilient.
For me, it’s one of the leading blue chip ideas among the ASX dividend shares. But, there are other stocks I’d rather go for.
