Demerger hits Coles result
COLES’ supermarket sales slowed during the run-up to Christmas, with the newly demerged retailer’s first-half profit slipping 29 per cent to $381 million as restructuring costs weighed on its balance sheet.
The company’s maiden interim report since its spin-off from Wesfarmers shows a 2 per cent lift in half-year revenue to $20.35 billion, largely due to a 3.1 per cent growth in supermarket sales to $15.72 billion, boosted by the “Little Shop” campaign.
But Coles’ sales slowed towards the back end of 2018, while a previously announced $146 million restructuring provision bored a hole in the overall result as the company prepares to modernise its distribution network as a standalone retailer.
Coles announced in January it will spend about $950 million over six years to modernise the company’s supply chain — including two new automated ambient distribution centres following its demerger from Wesfarmers in November.
When including $357 million interim profit from the discontinued operations of Wesfarmers-owned Kmart, Target and Officeworks, Coles’ net result fell by just 13 per cent.
Shareholders were seemingly unimpressed by the performance of the supermarket’s continuing operations, with Coles shares dipping by as much as 4 per cent to $12.08 yesterday, compared with the $12.49 listing price in November.
Revenue from the company’s convenience store segment fell 2.5 per cent to $2.8 billion on a 15.8 per cent decline in fuel volumes, while Coles’ NSW supermarkets underperformed amid increased competition from online food services.
The phase-out of single-use plastic bags also proved a financial headwind, while business costs are expected to increase.
Chief executive Steven Cain said it had been a solid first half amid challenging retail conditions and a drought that had placed pressure on fresh food categories.
Addressing yesterday’s decision to keep its $1-a-litre milk range despite rival Woolworths lifting its price, Mr Cain cited the cost of living pressures for customers.
“We are one of the main supporter of farmers ... but it is important we don’t disadvantage Coles’ customers,” he said.
Coles’ overall sales momentum is expected to remain in line with the end of 2018, while the company is hoping for traction with its new fruit and vegetables collectables program “Fresh Stikeez” after the success of “Little Shop”.