The Coles Group Ltd (ASX: COL) share price fell over 1% despite reporting strong sales growth in the third quarter of FY23.
Coles FY23 third quarter update
For the 12 weeks to 26 March 2023, Coles reported that supermarket sales grew by 7% to $8.6 billion, while liquor sales grew by 2.6% to $801 million. That meant total sales from the continuing operations grew by 6.6% to $9.4 billion.
Coles is selling Coles Express, so it has been classified as ‘discontinued operations’ – this division saw sales rise 0.7% to $271 million.
Looking at some of the supermarket’s numbers, the e-commerce sales grew by 2.7% to $662 million, though the online percentage of sales compared to total sales decreased from 7.8% to 7.5.
Total supermarket inflation was 6.2%, but excluding tobacco and fresh items it was inflation of 7.6%. I think that’s helpful for the Coles share price, but not for shoppers, as it grows sales.
Interestingly, Coles said that inflation slowed compared to the second quarter. The largest driver of the ‘moderation’ of inflation was in fresh produce, with some key lines in deflation, including lettuce, cucumbers, and carrots, and in the meat, deli and seafood categories.
Coles also said that packaged inflation also moderated as the business cycled a high level of supplier input cost price increase requests last year. Inflation in dairy remained “elevated as a result of an increase in the farmgate milk price and higher commodity prices.
However, the level of supplier cost price increase requests received in the third quarter decreased compared to the second quarter with the main drivers of the requests during this period relating to raw materials and utilities.
Final thoughts on the Coles share price
The business is still benefiting from inflation, which is helping drive sales higher. Sales growth has continued in the fourth quarter, with the growth of the number of products sold remaining “modestly positive”.
Cost inflation for suppliers is expected to continue to moderate in the fourth quarter, largely as a result of cycling elevated levels of inflation last year.
However, construction delays are continuing in relation to the two customer fulfilment centres being built by Ocado.
Coles is expecting that improvements in availability, higher immigration and further increases in at-home consumption will continue to “positively support future growth.”
As a defensive business, I think the business is a buy as one of the attractive long-term ASX dividend shares. However, as inflation reduces, I think sales growth will probably reduce too. But, population growth can help earnings.
