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Coles (ASX:COL) share price soars 7% on HY24 result, Q3 sales

The Coles Group Ltd (ASX: COL) share price has jumped 7% after a strong update from the supermarket company.

It operates the supermarkets and liquor businesses of First Choice, Liquorland and Vintage Cellars.

FY24 first-half result

Here are some of the highlights from the HY24 report:

  • Supermarket sales rose 4.9% to $19.8 billion
  • Continuing operations sales grew 6.8% to $22.2 billion
  • Underlying EBITDA rose 4.1% to $1.9 billion
  • Underlying net profit after tax (NPAT) fell 0.3% to $626 million
  • Statutory NPAT down 8.4% to $589 million
  • Interim dividend of $0.36 per share – no growth

There were a lot of moving parts to this report. HY23 included Coles Express revenue, which is why there is a ‘continuing operations’ metric. But, it also reported $450 million of ‘other’ revenue in this result, relating to the product supply arrangement with Viva Energy Group Ltd (ASX: VEA).

E-commerce sales performed strongly, with 29.2% growth for supermarkets and 14.9% for liquor.

Coles reported major project implementation costs of $46 million, relating to Coles’ new automated distribution centres (up from $17 million in the prior corresponding period). The efficiency gains from this could help the Coles share price in the future.

It also reported a 13.9% increase in its financing costs to $213 million, because of increased interest on lease liabilities associated with new leases and lease renewals, as well as a new $600 million bond issue and higher interest rates.

Coles supermarkets reported inflation of 3%, or 4.8% excluding the tobacco and ‘fresh’ categories. While Coles supermarkets saw a 10 basis point (0.10%) increase in the reported gross profit margin to 26.6%, it saw a 17 basis point (0.17%) drop in the EBIT (EBIT explained) margin.

Outlook for the Coles share price

In the first eight weeks of the third quarter, supermarket sales grew by 4.9%. It said this was underpinned by volume growth. It’s also seeing an improved total loss rate of its products. However, in the first eight weeks of Q3, it has seen liquor sales decline by 2.2%.

Coles is expecting financing costs to increase in the second half due to a higher level of gross debt, as well as an increase in borrowing costs.

I think Coles is a solid blue chip ASX share that’s investing to ensure its logistics network is up to date for the future with automated distribution warehouses. I like that it’s a solid dividend payer, but its costs keep increasing (including wages).

I’d be happy to own it as a retiree, but there are other names I’d prefer to invest in for more growth.

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