Coles Group Limited (ASX: COL) is one of Australia’s largest supermarket chains, operating more than 800 stores nationwide. Established in 1914, Coles provides grocery, liquor, and convenience store services, competing primarily with Woolworths and Aldi. The company also has a significant presence in e-commerce and delivery services, adapting to evolving consumer trends.
Financial Performance and Profit Decline
Coles reported a net profit of AUD 562 million, representing a 3.8% decline from the previous year’s AUD 584 million. While revenue climbed 4.2% to AUD 22.6 billion, increased costs significantly impacted profitability.
Cost of goods sold (COGS) rose due to higher supplier prices, increased freight costs, and logistical challenges, placing pressure on margins. Theft-related losses, estimated at AUD 1.1 billion annually, further eroded earnings.
Operating expenses increased 5.6% year-over-year, primarily due to higher wages and security investments to combat rising theft. The company’s gross profit margin declined slightly as inflationary pressures persisted.
Despite these challenges, Coles maintained strong cash flow generation, enabling it to distribute an interim dividend of AUD 0.36 per share, in line with expectations. The company emphasized its focus on cost discipline and operational efficiency to offset rising expenses.
Revenue Growth and Online Sales Surge
Coles experienced steady revenue growth, with total sales rising to AUD 22.6 billion, supported by strong consumer demand for fresh food and pantry staples. Supermarket sales increased 3.9%, bolstered by price-conscious shopping habits and ongoing promotional efforts.
Online sales continued to outperform, growing 10.5% year-over-year, as more customers opted for home delivery and click-and-collect services. The company expanded its digital infrastructure, streamlining logistics and improving order fulfillment efficiency.
Liquor sales showed moderate growth, up 2.4%, with strong demand for premium beverages. However, convenience store sales faced headwinds due to reduced foot traffic and cost-of-living pressures, limiting overall segment performance.
Challenges Cost Pressures and Competitive Landscape
Coles faced several operational challenges, impacting overall profitability:
Rising theft and security costs: The company cited a 22% increase in theft-related losses, forcing additional investments in anti-theft measures and security personnel.
Supplier price increases: Ongoing food inflation and rising commodity prices pressured gross margins, despite efforts to negotiate better supplier deals.
Workforce costs: Wage increases, coupled with new labour agreements, added to higher payroll expenses.
Competitive pricing pressures: Coles continues to compete aggressively with Woolworths and Aldi, requiring strategic price adjustments to maintain customer loyalty while preserving margins.