Australia’s Coles signals inflation as cost controls limit drop in first-half profits

Customers separated by protective plexiglass screens are seen in the self-service checkout area of ​​a Coles supermarket following the easing of restrictions implemented to curb the spread of the coronavirus disease (COVID-19) in Sydney, Australia, June 17, 2020. REUTERS/ Loren Elliott

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SYDNEY, Feb 22 (Reuters) – Australian grocer Coles Group Ltd (COL.AX) said December profits were halfway down in line with analysts’ forecasts as cost controls offset disruptions from COVID-19, adding that an explosion in household savings would allow people to keep shopping despite inflation.

The first-half result suggests the No.2 supermarket chain outperformed its biggest rival Woolworths Group Ltd at a time when many workers had to self-isolate and supply chain pressures left shelves under – stocked with high prices on certain products. Shares of Coles jumped 4%.

Coles and Woolworths, which collectively sell around two-thirds of Australian groceries, initially benefited from a ‘pantry loading’ rush as pandemic restrictions prompted people to spend more time at home.

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But they are also among Australia’s largest employers and the rise in the number of COVID-19 cases has forced a high number of frontline, warehouse and delivery staff to self-isolate, causing driving up costs and limiting the ability to restock shelves.

For Coles, net profit fell 2% to A$549 million in the six months, broadly in line with analysts’ forecasts and includes costs associated with an automated dispensing system it is in the process of developing. to construct. Pre-tax profit at supermarkets, where he makes most of his money, fell 0.8%, while profit at alcoholic beverages and petrol stations fell further.

“Coles appears to have handled a difficult period of trading well compared to Woolworths,” Barrenjoey analysts said in a client note, which noted that Woolworths had previously reported a larger decline in grocery sales for the same period. Read more

Coles shares hit their highest intraday high in six weeks, while the broader Australian market (.AXJO) fell 1%. Shares of Woolworths, which reports first-half results on Wednesday, were up 1.7% at midterm.

The Coles CEO said shelf prices for some produce, like red meat, had risen, but prices for other items like apples and avocados were exceptionally low due to favorable growing conditions.

“We saw additional cost pricing pressure early in this semester and expect this to continue, based on local and global input prices and various supply chain costs, including including the cost of oil,” he said on a call with analysts. .

“I would expect own brand penetration to continue to increase for those looking for value, but we also need to recognize that there is over A$100 billion in the bank accounts of consumers who are looking for value. there was none before Covid.”

Coles declared an interim dividend of 33 Australian cents per share, in line with last year.

($1 = 1.3904 Australian dollars)

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Reporting by Harish Sridharan and Shashwat Awasthi; Editing by Aurora Ellis and Sam Holmes

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James V. Hayes