How did Coles (ASX:COL) fare so far?

Highlights:

• Coles has had a strong start to the year, with its shares outperforming the ASX 200 by more than double.
• One of the most significant events for the company since the start of the year was the release of its FY23 half-year result.
• According to the company's outlook, Coles seems to be well-positioned for future growth.

Coles Group Ltd (ASX: COL) has had a strong start to the year, with its shares rising by around 10.6% in the first quarter of 2023. This represents a significant outperformance of the S&P/ASX 200 Index, which has gone up by 4.2% during the same period.

The performance of the Company was driven by the Company’s performance in 1H FY2023 along with the recent announcement related to the acquisition of  two automated milk processing facilities. In this article, we will look into these two updates.

Acquisition of two automated milk processing facilities:

On 03 April 2023, the Company announced that it signed a binding agreement to acquire two automated milk processing facilities from Saputo Dairy Australia for AU$105 million.

Each facility can  process around 225 million litres annually and they are mainly used today to process Coles Own Brand 2L and 3L milk. The acquisition of these two automated milk processing facilities will help the Company to improve the security of milk supply, consolidate Coles’ milk production, and can enable growth via further product innovation.

FY23 Half-Year Result

One of the most significant events for the company since the start of the year was the release of its FY23 half-year result. The company's financial report for the first six months of the financial year showed strong growth.

• Sales revenue increased by 3.9% to $20.8 billion, while earnings before interest, tax, depreciation and amortization (EBITDA) rose 7.6% to $1.81 billion.
• Moreover, earnings before interest and tax (EBIT) grew 9.6% to $1.06 billion, net profit after tax (NPAT) increased by 11.4% to $616 million, and earnings per share (EPS) went up 11.6% to 46.3 cents.
• These positive results indicate that the business is performing well and experiencing growth across all key financial metrics.
• The dividend also grew by 9.1% to 36 cents per share.

Positive Growth Across All Financial Metrics

The company saw growth in all of these financial metrics, which is a positive sign for the business. The financial results of Coles Group Ltd demonstrated that each of the profit lines grew at a faster rate than the profit level above it. Specifically, earnings before interest and tax (EBIT) grew at a faster rate than earnings before interest, tax, depreciation, and amortization (EBITDA), while net profit after tax (NPAT) increased at a faster pace than EBIT. This indicates that the company is experiencing scale benefits and improving profitability, which is a positive sign for investors. It also indicates that scale benefits are coming through for the company. The company successfully navigated through the high inflation period, as evidenced by Coles' supermarkets gross profit margin increasing by 43 basis points (0.43%) to 26.5%.

Volume Growth Returning to Supermarkets

Coles recently announced that supermarket volume growth has returned to a "modestly positive" level since mid-January. This indicates a positive outlook for earnings growth in the second half of the year. The company also acknowledged that supplier input cost pressures are still present, but it anticipates that inflation will decrease from its peak levels. With increasing cost of living pressures, Coles expects that more customers will prioritize value-conscious purchases.

Liquor Division

Coles Group Ltd is anticipating that its liquor division will experience growth in earnings as it shifts its focus on building sales momentum and moves away from competing with the COVID period. Additionally, the company expects to reap the benefits of its automated distribution centers, with store deliveries set to commence in the fourth quarter of FY23 from the Queensland facility and scale up from there.

Outlook for the Future

Investors are always focused on the future, and the commentary about the rest of the year could have an impact on the Coles share price. According to the company's outlook, Coles seems to be well-positioned for future growth. It expects population growth and a decrease in out-of-home dining, which could help to improve investor sentiment about the business. However, despite the recent positive performance of the Coles share price, it is worth noting that the stock is currently trading at a price close to where it was a year ago. Investors may want to consider the company's financial metrics and future outlook before making any investment decisions.

This may be due to the COVID-19 pandemic, which has impacted many businesses, including Coles. However, the company’s strong half-year result is a positive sign for investors, and the outlook for the future is encouraging.

Conclusion

In conclusion, Coles has had a strong start to the year, with its shares outperforming the ASX 200 by more than double. The company's FY23 half-year results showed growth in sales revenue, EBITDA, EBIT, NPAT, and EPS, with the dividend also being increased. Coles supermarkets are also seeing volume growth, which is a positive sign for earnings growth in the second half of the year. Looking ahead, the company expects to benefit from automated distribution centers and population growth. Despite its recent rise, Coles' share price remains close to the same level as a year ago. Nonetheless, with its strong financial performance and positive outlook, Coles may continue to be a good investment option for investors seeking exposure to the retail sector.

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