Coles (ASX: COL) shares slid over 4% on weaker FY23 outlook

• Coles shares slipped 4.278% at AU$17.900 per share on ASX at 2:49 PM AEST after the company released its FY22 results.
• The rising cost of doing business, rising interest, and other unfavourable weather events like floods continue to impact the supermarket giant's overall performance in FY23.
• The overall performance of the consumer staples sector, which was down 1.30% at 13,289.9 points, could have also impacted Coles' shares today.

The shares of Australian supermarket giant Coles Group Limited (ASX: COL) followed a bearish pattern today following the release of its FY22 results. Coles shares slipped 4.278% and settled at AU$17.840 per share by the end of day’s trade on 24 August 22. The Company reported a slight increase in its topline and bottomline numbers during the period hinted about a weaker FY23 outlook. Post which the shares tumbled on ASX.      

What do Coles FY22 financial results say?

• Strong sales growth in eCommerce Supermarkets and Liquor of 41% and 49%, respectively.
• Fully-franked FY22 final dividend of 30.0 cents per share. This takes Coles' total FY22 dividend of 63.0 cents per share. The company is expected to make this dividend distribution on 28 September 2022
• Sales revenue growth of 2.0% to AU$39.4 billion with strong eCommerce performance in Supermarkets.
• Three-year headline sales growth of 12.0% in Supermarkets, 18.0% in Liquor, and 8.1% in Express
• Stable EBITDA and EBIT of AU$3,440 million and $1,869 million, respectively.
• Cash realisation of 104%, capital expenditure of AU$1.2 billion, and net debt of AU$506 million
• During the period, more than 30 Express sites were closed due to the floods, with three remaining closed at the end of the year.
• Coles incurred costs from the flood events during the second half of nearly AU$30 million. This included the loss of stock, asset write-offs, and rise in freight costs via rail and road disruptions.
• Cost of doing business (CODB) as a percentage of sales increased by 50 bps to 21.4% due to COVID-19 costs, increased fuel costs, and underlying cost inflation.

FY23 Outlook:

In the announcement, the Company highlighted that it is well-placed in the market to face the macro-economic challenges. However, higher wages, Shipping & supply chain costs, Energy costs, and interest rates, are likely to impact the company's future earnings are some major factors that can impact its earnings in FY23.

Areas where the Company expect an impact in the business include:

• Supermarket sales growth:  The Company witnessed cost price inflation in produce due to recent flooding, in bakery due to wheat commodity prices, and in packaged groceries due to various supply chain cost increases including wages, packaging, raw ingredients and freight.
• Liquor sales growth: COL expects that liquor sales growth could get impacted by the cycling of COVID-19 lockdowns in 1H FY22.
• Coles Express: In Express, COL expects that weekly fuel volumes and sales would benefit from increased mobility, having been impacted by lockdowns in FY22. The scale of benefit would rely on fuel prices plus the impact of the Government’s reinstatement of the full fuel excise in September.
• Others: FY23 corporate costs are likely to be ~AU$95 million. Property earnings would be slightly below FY22.

How has inflation impacted Coles?

With the current inflationary conditions, which have increased operating expenses such as the cost of accommodation, electricity charges, and wages, the company is facing more significant challenges compared to online retailers. Online retailers do not have to bear the additional expenditures as they do not have to maintain large stores, which leads to operating charges. Some of the online retail stocks in Australia include Kogan.com Ltd (ASX: KGN), Redbubble Ltd (ASX: RBL), and Temple & Webster Group Ltd (ASX: TPW).

Coles price snapshot:

At the current share price of AU$17.900 per share, Coles' shares have fallen nearly 1.97% in the last one year.

Sector Performance:

Coming to the overall performance of the Australian equities, the ASX 200 closed slightly higher today as it was up 0.52% at 6,998.10 points. Seven of 11 sectors ended higher today where Energy was the best performing sector. The consumer staples sector was the worst performing sector, down 1.30% at 13,289.9 points. The overall performance of the consumer staples sector could have also impacted Coles share price today.

ALSO READ: ASX 200 Closed Higher By 0.52%; Buoyed By Energy And IT Sectors

Customer Notice:

Nextgen Global Services Pty Ltd trading as Kapitales Research (ABN 89 652 632 561) is a Corporate Authorised Representative (CAR No. 1293674) of Enva Australia Pty Ltd (AFSL 424494). The information contained in this website is general information only. Any advice is general advice only. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of this product for your circumstances. Please be aware that all trading activity is subject to both profit & loss and may not be suitable for you. The past performance of this product is not and should not be taken as an indication of future performance.

Kapitales Research, Level 13, Suite 1A, 465 Victoria Ave, Chatswood, NSW 2067, Australia | 1800 005 780 | info@kapitales.com.au