Booming Coles continues to ring tills and changes

Coles is not showing any sign of improvement fatigue, posting its fastest sales growth in two years on the fifth anniversary of its purchase by Wesfarmers.

Coles is not showing any sign of improvement fatigue, posting its fastest sales growth in two years on the fifth anniversary of its purchase by Wesfarmers.

And management is looking to squeeze even more earnings from the once-ailing supermarket chain through better supply arrangements and store refurbishments.

Wesfarmers chief executive Richard Goyder said there were no signs of any loss of momentum by Coles as it looked to win more customers from larger rival Woolworths and appeal to shoppers visiting discount stores such as Aldi.

"My expectations are that the team [at Coles] will continue to innovate, look at ways we can improve the offer to our customers through better stores, better products, better value and also look at how we can continue to be more efficient in what we do," Mr Goyder said. "We know there is a fair way to go, but I would want to say I think [Coles managing director] Ian McLeod and his team - it is close to five years - have done an exceptional job."

From the underperforming business Wesfarmers bought five years ago, plagued by broken cash registers, dirty stores and wonky trolleys, the supermarket chain on Thursday had its fastest quarterly sales growth in two years. Its food and liquor division recorded third-quarter sales of $6.49 billion, up 6.6 per cent, and like-for-like sales rose 5.3 per cent.

It was the best growth rate by Coles since the third quarter of 2011.

Coles achieved its 16th consecutive quarter of growth in like-for-like sales and has outperformed Woolworths' same-store food and liquor sales growth for 15 consecutive quarters. Last week Woolworths said its food and liquor division had increased sales by 5.6 per cent to $9.945 billion, although its Australian store network is 50 per cent bigger than Coles'.

Total sales for Coles, which combines its food and liquor business as well as convenience stores, increased 6.4 per cent to $8.35 billion in the quarter. Across Wesfarmers, total sales in key retail businesses covering Bunnings, Target, Kmart and Officeworks rose 5.7 per cent to $12.17 billion.

Mr McLeod said good comparative sales growth was driven by strong volume growth. But its liquor arm was a 0.6 per cent drag on sales.

The supermarket chain recorded overall food and liquor price deflation of 1.3 per cent in the third quarter, with price deflation of 1.7 per cent for the financial year to date.

Coles opened four supermarkets and closed three, taking the number of stores to 754. Coles also completed eight refurbishments, bringing the number of supermarkets to undergo renewal to 313.

The struggling Target general merchandise store, which recently appointed its third boss in two years, posted sales of $699 million for the quarter, up 1 per cent, with same-store sales growth of 1.9 per cent.

The chain continued to face tough trading, hit by sales declines across electrical and entertainment categories and a swollen seasonal inventory, up 16 per cent, forcing it to dump stock at discounted prices. This is expected to erode its trading result in the final quarter.

The poor performance was in contrast to Kmart. It continues to shine under managing director Guy Russo, with quarterly sales up 3.6 per cent to $842 million. Like-for-like sales were 3 per cent higher.

Bunnings increased total quarterly sales by 6.7 per cent to $1.858 billion, while like-for-like sales rose 4 per cent.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles