Mixed results yesterday from three retailers or suppliers to the sector – Coles, Best and Less, and Costa Group – saw similar outcomes for the companies’ shares – all rose, going against the sell-off in the wider market thanks to Russian aggression against Ukraine.
…………
First up, supermarkets group Coles (ASX: COL) saw its shares rise more than 3% after it left interim dividend steady as earnings eased off the back of a small rise in revenue for the six months to December and the continuing cost of the impact of Covid Delta and then Omicron.
The country’s Number 2 supermarkets chain will pay an interim of 33 cents a share after sales revenue for the half rose 1% to $20.6 billion but earnings were eroded by the rising costs as the retailer was forced to spend millions on rapid tests and additional workers as COVID heavily affected operations on the East Coast.
The shares ended at $17.27 after being a little easier in volatile early trading.
Earnings before interest and tax (EBIT a good measure of earnings in retailing) fell 4.4% to $975 million as the major retailer weathered the big increase in COVID-related costs from the Delta outbreak wreaked havoc on the company’s supply chains and workforce, and Omicron popped up at the end in December to add further pressure.
This result was in line and even slightly ahead of analyst expectations, which had predicted EBIT of around $965 million.
Coles said it incurred $150 million in additional COVID-related costs for the half, up from $105 million in the prior period.
This was largely within the company’s supermarkets division (which is understandable, given it is and was related to worker isolation requirements, rapid antigen tests for staff, and the cost of hiring additional workers to ensure customers were scanning QR codes on entry.
Group earnings before interest tax depreciation and amortisation (EBITDA) of $1.8 billion were down 2.2% .
Coles said the results also reflected “Smarter Selling benefits in excess of $100 million” being realised during the period.
“The vast majority of COVID-19 costs and Smarter Selling benefits impacted the Supermarkets segment,” the company told the market on Tuesday.
In Supermarkets, EBIT also includes approximately $20 million of project implementation operating costs in relation to the Witron and Ocado transformation projects.
In the company’s Express division, EBIT of $12 million was impacted by reduced mobility as a result of COVID-19 restrictions in New South Wales, Victoria and the Australian Capital Territory.
While in the “Other” segment, net costs increased by $13 million to $32 million as a result of lower earnings from property operations, higher insurance costs and an increased net loss from Coles’ 50% share of Flybuys.
CEO Steve Cain said in the statement that “Strategic progress continues and we are very excited that the biggest automation projects in Coles’ history, Witron and Ocado, will open next year (2023) to further enhance efficiencies and the range and service we can offer to inspire customers.”
Looking to the rest of the year, directors said:
“As Omicron spread through the community in the early part of January, Supermarkets sales were elevated before moderating later in the month. There has been significant variation in sales performance between states, store locations and on a week-to-week basis as a result of COVID-19 and floods in South Australia which have had an impact on sales, particularly in Western Australia.
“Coles will continue to focus on providing trusted value for customers, including through Exclusive to Coles products, despite increasing cost pressures.
“While the current operating environment remains uncertain, COVID-19 costs of approximately $30 million were incurred in January, primarily due to the large number of COVID-19 related isolations, which have now moderated in February.
“As foreshadowed at the first quarter sales results, COVID-19, including construction delays, has impacted Coles’ capital expenditure program. As such, Coles now expects capital expenditure in FY22 to be between $1.0 billion to $1.2 billion (previously $1.2 billion to $1.4 billion).”
…………
Small clothing retailer Best and Less Group (ASX: BST) survived the second wave of Covid Delta lockdowns in its first months of life as an ASX listed company and then backed up to ride out the impact of the Omicron variant.
In its first interim financial report since listing last July, the company said it was enjoyed what it called “a robust trading performance despite losing 9,437 trading days over the 26 weeks ended 26 December 2021, equivalent to 21.3% of total trading days.”
Total revenue of $287.5 million was down -3.8% on the prior corresponding period but Like-for-like sales were up by +0.1%, with online sales growing by +24.0% on the previous corresponding period.
Net profit after tax fell 21.3% to $20 million from $25.4 million.
Increased average transaction value (ATV) and average selling price (ASP) helped to deliver gross profit margin improvement of 2.10% on the PCP to 50.8% and tight cost of doing business (CODB) management preserved a strong EBITDA margin of 10.6%.
Despite the impact of Covid on revenue and earnings in the half year, the board declared a maiden fully franked interim dividend of 11 cents a share.
Directors said the June had started softly – “Through eight weeks of trading in H2 FY22, total sales are down -7.6% on the PCP, noting that January and February are typically the quietest months in the second half.”
“Customer traffic and purchasing behaviour remained subdued in January due to the Omicron outbreak and consequently delayed back to school period. With consumer confidence improving in February, the Company is experiencing an increase in traffic and sales, and in the absence of any further COVID outbreaks and enforced lockdowns, expects further improvement over the rest of the half,” directors said.
“BLG’s vertical retail model provides flexibility in ordering and inventory management, and as a result, BLG entered the second half in a good inventory position with stock inflow on track. With a robust supply chain and strong omnichannel capabilities, BLG is well positioned to trade through the important Easter and Mother’s Day periods.
“The Company remains committed to executing its growth strategy in the second half, by continuing to grow market share in baby and kids, improving the womenswear offer, investing in online capability and securing new store sites.”
But for all those positives, the market uncertainty saw the company decline to provide sales or earnings guidance at this time for the rest of the year or 2021-22.
The market accepted that absence and drove the shares up 8.6% to $3.67.
…………
And finally, Costa Group (ASX: CGC) is a major supplier of fruit and vegetables to Australian supermarkets and others and for once it had a solid 2020 without too many problems in sourcing its products.
The company said net profit rose 16% in the year to December to $64 million.
Thanks to significant appetite for berries from its operations in China and Morocco then company’s revenue rose 4.8% to $1.22 billion for the 12 months.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose by nearly 11% to $218.2 million from 2020.
Final dividend was set at a steady 5 cents a share, making an unchanged 9 cents a share total for the full year.
Costa Groups’ international business became a major profit driver for the company, and now has more than 27% of total annual sales or more than $325 million.
Costa Group CEO Sean Hallahan said in the statement the company’s international segment saw record growth of 30% in 2021, while domestic avocado sales were down.
“The current and projected growth of the middle class in China, the per capita growth in European berry consumption and the opportunities presented by emerging regions, such as India, means Costa is well positioned to benefit as we further invest in growing our international operations,” he said.
Berry volumes increased by 40% and 21% in China and Morocco respectively,
Costa Group’s avocado category was the only downside across its domestic produce portfolio, Mr Hallahan said, with demand impacted by lockdowns and low prices because of the continuing oversupply. It was only two to three years ago retailers and consumers were moaning about a shortage and high prices for the key fruit.
Berry sales and earnings improved throughout the year and demand and prices for mushrooms and tomatoes were up in the second half of the year.
Costa Group said the start of 2022 had seen a solid performance by its domestic business with stronger volumes across berries, tomatoes and mushrooms.
The shares jumped 8.6% to $3.26.
