The Coles Group Ltd (ASX: COL) share price is higher after the supermarket business reported strong profit growth.
HY23 result
Coles is selling Coles Express to Viva Energy Group Ltd (ASX: VEA), so the below numbers are its continued operations (supermarkets and liquor) compared to the prior corresponding period:
- Revenue increased 3.9% to $20.8 billion
- EBITDA (EBITDA explained) went up 7.6% to $1.8 billion
- EBIT rose 9.9% to $1.06 billion
- Net profit after tax (NPAT) grew 11.4% to $616 million
- Profit / earnings per share (EPS) went up 11.6% to $0.463
- Interim dividend increased by 9.1% to $0.36 per share
The Coles second quarter comparable sales growth was 7.4% for supermarkets and negative 0.9% in liquor, which was cycling against COVID-19 on-premise restrictions.
Coles put the EBIT growth down to a reduction of COVID-19 costs year on year, while also benefiting from smarter selling benefits (which includes cost cutting, improvements in its private brand products and so on). Stronger profit is good news for the Coles share price.
The supermarket business said that supplier cost inflation is starting to ease in the FY23 third quarter, however, in the FY23 first half there was 7.4% inflation and second quarter inflation was 7.7%.
Automated distribution centre
Coles revealed that, in January, the Witron automated distribution centre in Queensland began receiving in-bound inventory deliveries. This is the biggest autmated distribution centre in the southern hemisphere.
The company’s other three major automation projects are in “various stages of internal fit out”. Coles said this demonstrates its “commitment to innovation and continued long-term investment in supply chain efficiency and customer experience.”
Outlook for the Coles share price
In the current quarter, Coles said that supermarket volume growth has returned to “modestly positive” from mid-January.
Supplier input cost pressures “remain”, particularly for packaged goods, wages and energy. But, inflation is expected to moderate from peak levels seen in the second quarter as it begins to cycle against the FY22 second half inflation and farm-related availability improves.
Coles is expecting that more customers will be value conscious, which could help its own brand products.
In the liquor division, it’s expecting that earnings will return to growth in the second half.
The supermarket ASX shares also expects that its smarter selling program will help partially offset inflation cost pressures, and other parts of the business.
Coles said:
We are well positioned to navigate the current macro environment and as we look to the future, we expect improving availability, population growth and moderation in out of home dining, which has been elevated post-COVID-19, to positively impact the business and provide further opportunities for growth.
I think Coles is one of the leading ASX dividend shares with its defensive earnings and steadily-rising dividend. I think it’d fit well into a blue-chip portfolio.
