TLDRs;
- Coles shares fell 7% after half-year profit impacted by legal and operational costs.
- Investors worry ongoing price competition could pressure future margins despite revenue growth.
- Interim dividend set at 41 cents per share with ex-dividend date March 10.
- Online sales rise and partnerships expand, yet margin risks and lawsuits loom.
Shares of Coles Group Ltd (COL.AX) dropped 7.3% on Friday, closing at A$20.56, as investors reacted to the supermarket giant’s half-year results. While group sales rose 2.5% to A$23.618 billion for the 27 weeks ending January 4, net profit after tax (NPAT) fell 11.3% to A$511 million.
This decline follows A$235 million in significant charges linked to a Federal Court judgment from Fair Work Ombudsman proceedings. Excluding these charges, underlying NPAT actually climbed 12.5% to A$676 million.
Margin Pressures Stir Investor Anxiety
Market analysts say the sharp share decline signals that investors are focusing beyond headline figures to the sustainability of Coles’ profit margins.
“Coles might be down on the proverbial scorecard right now,” noted Kyle Rodda, senior market analyst at Capital.com, highlighting concerns about heightened competition and ongoing margin pressure.
While EBIT, stripping out one-off items, rose 10.2% to A$1.231 billion, the broader picture suggests that aggressive discounting and sector-wide pricing pressure could weigh on future earnings.
Dividend Set Amid Market Sell-Off
The board has declared an interim dividend of 41 Australian cents per share, fully franked. Shares will go ex-dividend on March 10, with the dividend payable on March 30. Investors have until March 12, 5 p.m. AEDT, to make elections for the dividend reinvestment plan or select currency preferences.
Despite the payout announcement, the market response reflects caution about Coles’ ability to maintain growth amid legal disputes and competitive pressures.
Operational Updates Show Mixed Signals
Coles reported a 3.7% rise in supermarket sales revenue for the first seven weeks of the third quarter, climbing 5.3% if tobacco sales are excluded. Liquor sales continued to slide, though the decline moderated to 2.5%. Online penetration reached 13.1% during the half, and the company is expanding partnerships with platforms such as Uber Eats.
Additionally, a ChatGPT Enterprise rollout is underway to support store operations. CEO Leah Weckert emphasized that value remains a key focus for shoppers, highlighting the delicate balance between competitive pricing and maintaining profitability.
Legal Challenges and Sector Competition
The retailer faces ongoing regulatory scrutiny, including a lawsuit from the Australian Competition and Consumer Commission over allegedly misleading promotions. Combined with margin pressures from discounting strategies, these legal and competitive risks contributed to the share price slide.
Woolworths, Coles’ larger rival, recently reported first-half profits that exceeded expectations, reinforcing the intensity of the grocery sector’s “price wars” and placing additional scrutiny on Coles’ performance.
Looking Ahead to Third Quarter Sales
With the market closed over the weekend, traders are watching closely for any signs of continued selling or bargain-hunting as the ex-dividend date approaches.
Coles is scheduled to release its early third-quarter sales update on May 1, which will offer a clearer view of how the company is managing pricing pressure, legal costs, and operational growth in a highly competitive market.
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