Coles Share Price Falls on Half-Year Results

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At time of writing, the share price of Coles Group Limited [ASX:COL] has fallen 4.05%, trading at $12.08 per share.

The latest news out of the company is its half-year results release, which points to an ongoing need to restructure its business.

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Investors not enthusiastic about Coles’ share price, for now

Here are the main highlights of the release:

  • Group sales up 2.6%
  • Group EBIT decline of 5.8% to $733 million
  • 30% online sales growth
  • Confirmed target dividend payout ratio of 80–90% payable in September 2019
  • $950 million invested in supply chain automation

Speaking to analysts on Tuesday, CEO Steven Cain tempered expectations for the stock for the immediate future:

It’s time to reset the Coles business to achieve sustainable long-term growth for our shareholders, a strategic refresh to ensure we appropriately address the headwinds facing the company.

Mr Cain is likely well aware of the current difficult environment for the retail sector, prompting him to emphasise ‘sustainable long-term growth’.

Crucially, there was no interim dividend announced.

Among the best performing segments of Coles’ sales was liquor which was up 7%.

But the company’s performance in NSW was muted, as well as a significant hit to its convenience and fuel segment, with its EBIT down 39.3%.

What’s the outlook for the Coles share price?

In the mid-term it’s possible the Coles share price will remain in a subdued pattern, pending an investor strategy update in mid-June.

It is also worth noting that between 2016 and 2018, the company reported less than 0.5% revenue growth.

As such, the coming automation of its supply chain cannot come soon enough as it feels the pressure to cut costs.

In this sense, it is lagging behind Woolworths Group Limited [ASX:WOW], who have recently built a massive new automated distribution centre.

To say little of the looming impact Amazon may have on the supermarket business.

As a result, my outlook for the stock is mixed/negative.

We could see the Coles share price hold its current pattern, punctuated by drops that coincide with a falling market.

At the same time, in falling markets investors sometimes also have a taste for producers/distributers of consumer staples.

This might provide some support for the company’s share price

So a lot hinges on what the macro picture looks like in a few months’ time, something I am largely bearish about.


Lachlann Tierney,
For Money Morning

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About Lachlann Tierney

Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest…

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