In news on Australian stocks this morning, shares of Coles Group Ltd. (AU:COL) jumped over 7.9% after reporting better-than-expected results for the first half of Fiscal 2024. Meanwhile, the supermarket chain continues to face price gouging allegations as customers are burdened with sky-high inflation and interest rate pressures.
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Coles, the second largest grocery retailer in Australia, has been accused of increasing product prices more than required to beef up its profits. Coles Managing Director and CEO Leah Weckert is set to face an investigation by the Senate and competition authorities into these allegations.
Coles’ H1 FY24 Results
The food and grocery retailer posted an 8.4% year-over-year decline in its H1 FY24 net profit to AU$589 million but exceeded analysts’ consensus estimate. The company’s Supermarkets margins remained under pressure, falling to 5.1% from 5.3% reported in H1 FY23.
In H1FY24, Coles Group sales grew 3.7% year-over-year to AU$22.22 billion, backed by a 4.9% rise in Supermarkets segment’s sales and a 1.8% rise in Liquor sales. Despite the profit drop, Coles maintained the fully franked interim dividend at AU$0.36 per share, same as last year, to reward shareholders.
In Coles defense, Weckert said that the company needed profits to keep the business running and to pay its stakeholders, including employees and suppliers. Weckert also said that the supermarket has made less than 3 cents of profits on every dollar spent by shoppers, reflecting the impact of growing food inflation. She denied any accusations of food gouging at the supermarket chain. The company even reduced the prices of over 100 products under its “Great Value, Hands Down” campaign in the last six months and offered improved loyalty rewards plans.
Looking ahead, Coles is optimistic about delivering greater value to customers under its campaign and is well-positioned to navigate the macro challenges. In the first eight weeks of the Fiscal third quarter, Coles’ Supermarkets sales have risen 4.9%, backed by solid volume growth. However, Liquor sales fell 2.2% as customers reduced their discretionary spending.
Is Coles a Good Share to Buy?
Following the results, Citi analyst Adrian Lemme reiterated a Buy rating on COL with a price target of AU$18 (7.3% upside). In stark contrast, Goldman Sachs analyst Lisa Deng reiterated a Sell rating on Coles shares.
Based on these two ratings, COL stock has a Moderate Sell consensus rating on TipRanks. The Coles Group Ltd. share price forecast of AU$14.74 implies 12.2% downside potential from current levels.
