Is the Coles Group Limited (ASX: COL) share price a buy? Investors didn't seem to think so when looking at the trading update yesterday.
The Coles share price fell by over 4% yesterday in a pretty rough day for the supermarket business considering the ASX actually went up over 1%.
What Coles said
What was in that disappointing quarter trading update? Well, I thought the reported numbers were actually quite good due to the heightened coronavirus buying. Supermarket revenue increased by 13.8% to $8.23 billion, with comparable growth of 13.1%. Total revenue rose by 12.9% to $9.23 billion with comparable growth of 12.4%.
I think there were two main issues that investors have seen. The first is that Coles said its expenses were higher due to a broad range of issues. Cleaning, security, extra staff, logistics and so on.
The other issue is that the high demand seems to have been short-lived. Coles said that in the first four weeks of the fourth quarter, which included Easter and ANZAC Day, supermarket comparable sales growth has broadly trended back to levels seen in the early part of the quarter before the coronavirus.
But Coles is trying to make the best of the situation. And the Coles share price has held up reasonably well, apart from today.
It's continuing to invest in its automation projects with Ocado and the new Witron warehouse in Queensland so that it's well-placed to grow when the restrictions ease.
Coles has announced a five-year partnership to be the official supermarket of the AFL and AFLW. It has also entered into a partnership with Stephanie Alexander's Kitchen Garden Foundation to encourage more children to eat a healthier diet. These are good long-term moves.
Is the Coles share price a buy?
The surge of demand seems to be over. The growth is going to be lower from here, it may even come at a higher cost if it still has to pay for the increased cleaning, security and so on.
The last six months have not been easy when you include the bushfires as well.
Coles provides quite defensive earnings and therefore a defensive dividend. But I think there are better growth shares and better defensive shares out there, particularly at this current Coles share price.
