Supermarket giant Coles Group Ltd (ASX: COL) shares will be on watch this morning.
This is because the ASX consumer share released robust FY24 financial results.
Over the past year, the Coles share price has risen 16%, outperforming its rival Woolworths Group Ltd (ASX: WOW), which is down nearly 6% over the same period.
Can Coles keep up its momentum? Let's find out.
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Strong profit growth from supermarkets
Highlights from Coles' FY24 results include:
- Revenue increased by 5.7% on a 52-week basis to $43.6 billion
- Underlying earnings before interest and tax (EBIT) increased by 7.3% to $2,175 million
- Underlying net profit after tax (NPAT) increased by 4.1% to $1,210 million
- Earnings per share (EPS) rose 2.1% to 84.6 cents
- The company declared a final dividend of 32 cents per share, bringing the total FY24 dividends to 68 cents per share
All figures are based on continuing operations, excluding Coles Express, divested during the financial year. FY24 was a 53-week year on the Coles' retail trading calendar. All prior year comparisons are on an adjusted 52-week basis.
The Supermarkets division reported revenue growth of 4.3% to $39 billion and an impressive 10.5% growth in its underlying EBIT to $2,175 million. The company highlighted its focus on value and product availability paid off. Both the Exclusive to Coles range and eCommerce delivered strong growth.
On profitability, the Simplify and Save to Invest initiatives led to benefits of $238 million and a 44 bps improvement in loss rate in 2H FY24.
The Liquor segment's sales increased slightly by 0.5% to $3.7 billion, but underlying EBIT declined 13.9% as customers continued to reduce discretionary spending amid living cost pressures.
The company invested in the automated distribution centre (ADC) and customer fulfilment centre (CFC) programs. These facilities went operational in July 2024.
During the year, Coles acquired two automated milk processing facilities from Saputo Dairy Australia and 20 Liquor retail stores in Tasmania.
What did management say?
Commenting on the robust FY24 results, Coles Group CEO Leah Weckert said:
The financial pressures on households and families have been front of mind for us this year and we have endeavoured to deliver value across our supermarket, liquor and online offerings to help customers balance the household budget.
At the same time, we have worked hard to deliver improvements in availability and quality, made significant inroads in addressing loss, accelerated our digital offering, continued to maintain a strong focus on costs and completed the construction of our second ADC and both our CFCs.
Positive momentum to continue in FY25
In the first eight weeks of FY25, supermarket revenue grew by 3.7%, led by Winter of Sports campaigns. The company sees increasing popularity for Coles Finest range and convenience meals as consumers shift to home cooking rather than dining out.
In Liquor, sales declined by 1.4% in the first eight weeks of FY25, mainly due to the July CrowdStrike outage. Excluding this, sales were down by 0.3%.
In FY25, the company plans to open eight new supermarket stores, close five, and renew approximately 50 stores. Similarly, the company aims to open 13 new liquor stores and close 10 stores.
For the FY25 outlook, CEO Weckert commented:
As we look ahead, we are well positioned to deliver on our strategic priorities.
With our Kemps Creek ADC ramping up and our two automated CFCs in the process of transitioning orders from stores, we look forward to unlocking the full benefits of our transformation investments, including delivering further improvements in availability and efficiency through our ADCs and delivering a world-class customer experience for online orders.
With ongoing cost-of-living pressures, we will also continue responding to the needs of our customers with a focus on value through every day low prices, promotions, Flybuysand Coles Own Brand.
How expensive are Coles shares compared to peers?
Coles shares are valued at a price-to-earnings (P/E) ratio of 22x based on FY25 earnings estimates. Using S&P Capital IQ estimates:
- Woolworths Group shares are valued at a forward P/E of 25x
- IGA operator Metcash Ltd (ASX: MTS) shares are valued at a forward P/E of 13x
- Wesfarmers Ltd (ASX: WES) shares are valued at a forward P/E of 31x
Coles shares closed at $18.46 on Monday.
