The Coles Group Ltd (ASX: COL) share price is down more than 1% after the supermarket business revealed a delay with its new distribution centres.
In 2019, Coles announced that it had entered into an exclusive service agreement with Ocado , which included developing two automated customer fulfilment centres (CFCs), one in Victoria and one in NSW.
Coles delays
The supermarket business said with its FY23 third quarter that delays were affecting construction of the CFCs and noted that work was continuing to determine what impact the delays would have on timelines.
Coles has received notification from Ocado about delayed timing for the hand over of the Victorian CFC.
It said that additional works are required to rectify construction issues with the grid identified during quality control processes for the Victorian CFC.
In light of the revised hand over date, the commissioning of the Victorian CFC will be delayed, with the incremental ramp-up period now expected to start in mid-FY25, rather than mid-FY24. This is harmful for the Coles share price because it delays when cost reductions and operating efficiencies come through.
Coles also said that the NSW CFC being built by Ocado is expected to be comissioned with an incremental ramp-up period commencing at the end of the FY24 second half – previously it was just said to be the second half of FY24.
What are the impacts of the delays?
Coles said this is likely to increase the project capital and operating expenditure by approximately $70 million and $50 million, respectively. This will be “managed within the Coles capital expenditure envelope.
Total capital expenditure is now expected to be approximately $400 million, of which 55% has been incurred to the end of FY23, with the (45%) balance expected to be incurred in FY24 and FY25.
Final thoughts on the Coles share price
Since 28 July 2023, Coles shares have fallen over 5%, I think this represents better price for Coles. As a blue chip, I’d rate it as one of the best large ASX dividend shares.
