The Coles Group Ltd (ASX: COL) share price is down 5% after the supermarket company revealed financial numbers in the FY23 result that didn't impress the market.
The 2023 financial year was dominated by talk of inflation, so it was no surprise that annual inflation in supermarkets was 6.7%, and fourth-quarter inflation was still strong at 5.8%.
Image source: Getty Images
Earnings recap
Last year, Coles announced that it was going to sell its Coles Express business to Viva Energy Group Ltd (ASX: VEA) for proceeds of $300 million.
Excluding Coles Express were the remaining 'continuing operations' businesses, which saw sales growth of 5.9%, earnings before interest and tax (EBIT) growth of 1.8% and a decline for net profit after tax (NPAT) of 0.3%.
While the business has been doing its best to reduce costs, margins suffered due to higher borrowing costs, "elevated levels of organised retail crime and theft", higher wages and major project implementation operating expenditure.
The major project implementation refers to its new distribution centres, but the Ocado ones are facing completion delays. The Queensland automated distribution centre started outbound deliveries in March.
While the total dividend per share for FY23 increased by 4.8% to 66 cents, the final dividend per share was maintained at 30 cents per share.
On the balance sheet, net assets increased $232 million year over year to $3.36 billion. Net debt (excluding lease liabilities) rose $159 million from the FY23 half-year to $521 million.
Mixed outlook
In the early part of FY24, supermarket volumes have remained "modestly positive" compared to FY23. The company is seeing "early signs" of customers shifting out of home dining. Headline inflation has "continued to moderate" with fresh produce seeing deflation, but inflation in bakery, grocery and dairy "remains consistent with the fourth quarter." This suggests positive sales growth, but won't necessarily help the Coles share price.
Stock loss is a priority for the business, so it's increasing security at high risk stores.
Costs relating to staff are going to see a sizeable increase in FY24, with the recent increase in the Victorian payroll tax estimated to have an impact of approximately $20 million per annum, and the annual wage increase by the Fair Work Commission means store remuneration "will increase by 5.75%".
It's expecting to open 15 new supermarkets and close six, and open 20 new liquor stores, and close six in FY24.
Management is confident about the company's longer-term supply chain investments and improved product availability. It expects to benefit from population growth in the medium term.
Coles share price snapshot
Over the past year, Coles shares have dropped by over 16%, as we can see on the chart below. That's significant underperformance compared to the S&P/ASX 200 Index (ASX: XJO) which has risen 0.6% over the same time period.
