Supermarket giant Coles has become the first retailer to explicitly warn that sales could decline over the remainder of the year as the COVID-19 sugar hit to the sector in the June half of 2020 wears off thanks to the vaccine rollout and a reduction in stimulus payments.
The retailer warned investors on Wednesday its sales surge, brought on by pandemic panic buying through the last 9 months of 2020, could be coming to an end, with sales for the first six weeks of the new year growing just 3.3%, well below the 20%-30% monthly growth rates Coles was reporting at times in the June quarter of 2020.
And there looks like being an impact on earnings in the current half and the first half of 2021-22 as well, as Coles explained in the statement.
It said growth in its online sales “has moderated to 37%. As the business begins to cycle the COVID-19 impacts in the second half of FY21, Supermarkets sales and EBIT growth are expected to face challenges relative to the prior corresponding period.”
“Depending on COVID-19, vaccine roll out and efficacy, and other factors, sales in the supermarket sector may moderate significantly or even decline in the second half of FY21 and into FY22,” Coles warned on Wednesday in its interim results commentary.”
While the outlook remains uncertain, Coles said the following trends are likely: Some reversal of the local shopping trend as customers become more confident in shopping in larger centres resulting in stronger performance of shopping centre stores; Increased movement as COVID-19 restrictions ease which will assist in the restoration of fuel volumes relative to pre-COVID-19 levels and reduced immigration which has underpinned population growth, an important sales growth driver, in prior years.
Coles also pointed out that “the benefits of recent improvements in both employment numbers and consumer confidence may be partly offset by a reduction in fiscal stimulus measures introduced during the height of the pandemic.”
The giant said that while supermarkets comparable sales growth “has continued to moderate and in the first six weeks of the third quarter was 3.3%… there continues to be significant variation in sales performance between states, store locations and from week-to-week as a result of customer shopping trends as well as any short-term outbreaks that have occurred around the country.”
On top of this Coles expects to be spending around $10 million a month on extra pay for staff and cleaning and hygiene.
Coles also said that while liquor sales remain strong (up 12.5% in the early weeks of the current quarter, it will “also be cycling the elevated sales due to COVID-19 which will present challenges given the fixed cost nature of the Liquor business. Investments in service and capability as part of Liquor’s refreshed strategy will continue in the second half.”
Coles lifted interim dividend to 33 cents a share for the six months to the end of December, up 10% on a year go.
That was after total revenue rose 8.1 per cent to $20.4 billion, for the half and comparable sales at Coles’ key supermarkets division jumped 7.2% (double the 3.3% rate in the first six weeks of 2021)
Net profit after tax rose 14.5% to $560 million.
The warning from Coles makes a mockery of all the retailers and other companies that saw a surge in sales in 2020 not being willing to at least warn that 2021 will not see a repeat simply because of the high comparative based they will be using to report sales in the June half and for the 12 months to June.
It makes sense to be conservative as many companies have been in not wanting to issue guidance, but equally it is a trifle misleading to ignore the growing possibility that sales growth will slow sharply as the vaccines are rolled out and the JobKeeper and JobSeeker payments are wound back or cut.
