The Coles Group Ltd (ASX: COL) share price has dropped 4% after the supermarket giant announced its FY22 result.
There are three main elements to the Coles business – supermarkets, liquor stores (eg First Choice and Liquorland) and Coles Express.
Coles FY22 result
Here are Coles’ financial highlights for the 52 weeks to 26 June 2022:
- Total sales rose by 2% to $39.4 billion
- EBITDA (EBITDA explained) rose 0.2% to $3.44 billion
- EBIT fell 0.2% to $1.87 billion
- Net profit after tax (NPAT) increased 4.3% to $1.05 billion
- Earnings per share (EPS) grew 4.6% to 78.8 cents
- Final dividend up 7.1% to 30 cents per share
- Full year dividend up 3.3% to 63 cents per share
Coles told investors how its sales revenue performed year on year and how it had grown compared to FY19, before COVID-19.
Supermarket sales of $34.6 billion were up 2.2% year on year and up 12% compared to FY19. Looking at EBIT, supermarket EBIT increased 0.8% to $1.71 billion. In the fourth quarter of FY22, supermarket inflation was 4.3%, with ‘fresh’ inflation of 4.7%.
Liquor sales were up 2.5% year on year and up 18% over three years. Liquor EBIT fell 1.2%.
Express sales were down 5% to $1.13 billion, but up 8.1% over three years. Express EBIT sank 37.3% to $42 million.
Coles’ EBIT includes COVID-19 costs of approximately $240 million and project implementation operating costs relating to the Witron and Ocado transformation projects of approximately $30 million.
The Witron part refers to Coles’ new, huge automated warehouses that will help lower costs and improve efficiency for the business.
The Coles partnership with Ocado aims to utilise its world-leading technology in automated single-pink fulfilment technology and home delivery solutions. It aims to provide a seamless digital customer experience with a unified app and website, improve product availability and freshness, greater product range and increased network capacity to extend the catchment areas for efficient last mile delivery.
Outlook for FY23 and the Coles share price
Coles noted that in FY23, it will be cycling against sales from COVID-19 lockdowns in the first half of FY22 (NSW, VIC and ACT) and price inflation in the second half of FY22. In other words, sales may show a decline in HY23.
In July, Coles saw further cost price inflation in produce because of flooding, in bakery due to wheat commodity prices and in packaged groceries due to various supply chain cost increases due to wages, packaging, raw ingredients and freight.
Liquor is also cycling against COVID-19 lockdowns in the first half of FY22.
However, in Express, weekly fuel volumes and sales are expected to benefit from increased mobility.
Coles noted that it’s seeing inflationary pressures impacting its own cost base, with increasing wages, rent, fuel, supply chain and capital costs. COVID-19 and the flu has led to increased “team member absenteeism costs”.
However, it said that smarter selling benefits of around $230 million are on track to deliver its four year program of $1 billion of benefits by the end of FY23.
The company expects to open around 20 new stores, close nine stores and renew 40 stores.
Coles is a good business, but it seems like Coles may have already seen the best of the inflation benefits for the Coles share price. It’s one of the decent ASX dividend shares, but there are other names I’m attracted to first.
