The Coles Group Ltd (ASX: COL) share price is under the spotlight after the supermarket business reported its HY25 result.
The key earnings generators for Coles are supermarkets and liquor stores (such as Liquorland, First Choice and Vintage Cellars).
HY25 result
Here are some of the main highlights from the first six months of the FY25 first half:
- Total revenue rose 3.7% to $23 billion
- Underlying EBITDA climbed 12.5% to $2.1 billion
- Underlying EBIT increased 8.9% to $1.2 billion
- Underlying net profit after tax (NPAT) rose 6.4% to $666 million
- Reported net profit down 2.2% to $576 million
- Interim dividend per share up 2.8% to $0.37
A key driver of the result was the 4.3% rise of supermarket sales to $20.6 billion, while liquor sales only grew 0.8% to $2 billion. It’s good that the liquor division was able to deliver growth at all.
It was noteworthy the business was able to grow its underlying earnings at a faster pace than sales, which shows pleasing operating leverage.
Coles e-commerce sales increased by 22% to $2.2 billion, taking e-commerce penetration to 10.7%.
However, during the half, major project implementation costs, dual-running and transition costs of $92 million were incurred relating to the Kemps Creek automated distribution centre and two automated customer fulfilment centres for the supermarket division.
Further supply chain modernisation
During the period, the company announced an agreement with WITRON to invest $880 million to develop a new automated distribution centre in Truganina, Victoria.
This facility will have approximately 15% more capacity than the new NSW and Queensland facilities. Completion of this will mean Coles has delivered full automation of its ambient distribution centre network across the eastern seaboard of Australia. These could be important pillars for the Coles share price in future years.
This project is expected to start in FY25 and take up to five years to complete.
Significant items of $35 million were recorded this half related to future closure and site reconfiguration costs associated with the project.
Coles Chair to retire
The supermarket business also announced to investors that James Graham will retire from the Coles Board, effective 30 April 2025. The board has appointed Peter Allen as Chair-elect to succeed Graham on 1 May 2025.
Graham has been the Chair of Coles since its listing in 2018.
Outlook for the Coles share price
In the first seven weeks of the third quarter of FY25, supermarket sales grew by 3.4% as it cycles a very strong third quarter in FY24 and liquor sales grew 3.8%.
Coles said supermarket customers remain value-conscious. Its exclusive brand portfolio continues to grow and its value offering (including Flybuys) is seeing strong participation rates.
Discretionary spending “remains subdued” for liquor.
It’s impressive that Coles has continued growing its underlying earnings and it’s investing heavily in new distribution centres to ensure it’s efficient, which should reduce costs.
The Coles share price has rallied 17% over the past year, so it’s not cheap for a business growing sales at a low-digit pace. I’m not looking to invest today, but I like its ongoing dividend growth.
