Coles Share Price Up on Quarterly: Little Shop Makes Big Profit

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Eyes will be on Coles Group Ltd [ASX:COL] today after they released their first FY20 quarterly update.

In the prior corresponding period, sales grew by 5.1% with thanks to the Little Shop promotion and single-use plastic bags.

Reviving the Little Shop campaign clearly didn’t have as great an effect this time around.

Results showed same-store supermarket sales rose 0.1% in the quarter, the weakest growth in around 12 years for the company.

Yet considering some analysts anticipated a sales decline of around 1%, the result is still considered to be a success.

Coles’ share price slid 2.67% yesterday as analysts downgraded the company prior to today’s announcement.

However, shares were already up 2.34% within the first hour of today’s trading.

Quarterly highlights

Group sales for the quarter increased 1.8% to just shy of $8.7 billion.

Liquor sales for the quarter reached $726 million, a 3.5% increase from Q1FY19.

Another standout was the Coles online sector, which grew in sales revenue by 23.5% for the quarter. Click & Collect is still the fastest growing channel online and is now available Australia-wide.

C-store sales also improved from Q1FY19 by 3.1%, with transaction growth driven by the Little Shop 2 campaign.

Strategic highlights include improving the Own Brand range, helping local dairy farmers by directly sourcing milk from Victoria and NSW, and further initiative to become Australia’s most sustainable supermarket.

CEO Steven Cain notes:

The refreshing strategy we set out to Win in Our Second Century has helped us to deliver a positive set of results for our first quarter.

The increased sales momentum we are seeing in the second quarter demonstrate that the changes we are making to Inspire Customers are already making a difference.’

Are Coles shares a buy?

It seems the Little Shop 2 campaign managed to avoid triggering ‘collectables fatigue’ in the Coles customers, saving the company from a sales decline that CEO Steven Cain believes would have occurred without the plastic trinkets.

Coles are clearly aware that ‘pester power’ is a driving force worth targeting.

But their main rival, Woolworths Group Ltd [ASX:WOW] seem to have their foot in this market as well, sporting their own ‘Ooshies’ collectables and their most recent environmental campaign, the Discovery Garden.

Woolies are set to release their numbers on Wednesday, which will be worth taking a look at for comparison.

Coles’ last dividend was at 35.5 cents on 28 August, a yield of around 2.7% based on the coles share price at that time.

If that sounds disappointing, here are five dividend stocks that we see are a part of the next generation of Aussie income super stars.

Regards,

Imogen van der Meer,

For Money Morning

About Imogen Van Der Meer

Imogen is a research analyst at Fat Tail Investment Research, she holds an RG146 certification in securities and is currently completing a Masters Degree at the University of Melbourne. She has a particular interest in fintechs and the exciting innovations coming out of ASX-listed small caps.

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