Why the Coles share price is on the move today

The Coles Group Ltd (ASX:COL) share price is on watch this morning following the release of a trading update from the supermarket giant.

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The Coles Group Ltd (ASX: COL) share price is on watch this morning following the release of a 1H20 trading update from the supermarket giant. This comes ahead of Coles' 2020 half-year results announcement due later this month.

At the time of writing, Coles shares are up 1.68% to $16.93. Over the past 12 months, the Coles share price has risen very strongly, increasing by 36%.

In the company's previously released Q1 2020 results, Coles reported that in the early part of the second quarter, Supermarkets comparable sales growth had trended towards the level achieved in the fourth quarter of the 2019 financial year.

However, the success of Coles' Christmas campaign exceeded expectations, with Supermarkets delivering comparable sales growth of 3.6% in the second quarter and 2.0% for the first half.

Liquor and Express sales down slightly

Comparable sales growth in Liquor and Express were 2.1% and 5.1% respectively for the second quarter, and 1.5% and 2.9% respectively for the first half.

Coles' provisional first half FY20 Group EBIT is expected to be between $710 million and $730 million. The first half provisional EBIT result was impacted by the following favourable timing and non-operating items to be reported in its 'Other' category.

This included a $15 million self-insurance release of the workers' compensation provision, largely as a result of improved safety performance. As well as this, earnings from property operations of $33 million also had an impact, which includes net gains from property disposals that represent the vast majority of the expected FY20 property earnings.

Supermarkets EBIT growth in the first half of FY20 benefited from incremental costs incurred in the first half of FY19 relating to the removal of plastic bags and increased Flybuys promotions, which were not repeated in the first half of FY20. However, Coles noted that the cycling of these prior-year incremental costs is not expected to reoccur in the second half of FY20.

Coles commented that despite a satisfactory outcome on sales in its Liquor division, Liquor EBIT in the first half of FY20 was down on the prior corresponding period (pcp) as a result of margin pressure. In addition, Liquor EBIT was impacted by clearance and promotional activity following the commencement of strategic range reviews.

What now?

The supermarket giant noted that this 1H20 trading update is a provisional result based on management accounts and is subject to finalisation and audit review. Coles' full 2020 half-year results announcement is scheduled for 18 February 2020.

The reason for the later than usual trading update in February is that Coles is transitioning to a retail reporting calendar. As a result, this reflects 27 weeks in the first half which in the 2020 financial year ended on 5 January 2020, the pcp ended on 30 December 2018.

Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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