Supermarket chain Coles has confirmed that it has been a major beneficiary of the COVID-19 pandemic and lockdowns governments have introduced to control its spread.
The supermarket giant yesterday reported a massive 13% jump in third-quarter sales as coronavirus panic buying saw people rush into its stores looking for essentials, liquor, and even petrol.
In its third-quarter trading update issued on Wednesday, Coles said total revenue in its supermarkets’ division jumped to $8.2 billion in the third quarter of its financial year, a rise of 13.8% on the March quarter in 2019.
Comparable sales on a same-store basis grew 13.1% – a more than 550% increase on the 2% rise in same-store sales Coles reported at its half-year result in February.
It’s the strongest quarterly comparable sales growth since Coles merged with Wesfarmers in 2007, with the next-highest figure a 7.3% rise in the fourth quarter of the 2009 financial year.
Investors sold off the shares yesterday – they closed down 4.4% at $15.51 in yet another example of sell on the fact.
Perhaps investors also didn’t realise that for all the surge, that there would be higher costs.
Coles indicated its costs in the June half would be higher because of extra staff, cleaning costs, and other anti-COVID-19 infection measures and higher fresh food costs.
Coles was spun out of Wesfarmers in late 2018 and on Tuesday Wesfarmers revealed that trading in its retail chains had been mixed in the first quarter, with Bunnings and Officeworks doing well, along with Kmart, but not Target.
As a result, Wesfarmers said it was accelerating its review of the underperforming target department store chain and would release its decision before the group’s financial year ends on June 30. Store closures and possible sale loom as the most likely options.
The boom wasn’t as pronounced in Coles’ petrol station convenience stores, with same-store sales growing 4.3% as fuel volumes declined late in the quarter as the lockdowns started biting, driving hundreds of thousands of vehicles off the roads.
Coles said fuel revenues continued to “materially decline” in April, though the retailer said it expects them to recover as the country is reopened.
Online sales growth also slowed from 24% in the first half of the financial year to 14% throughout the third quarter as Coles was forced to shut down online deliveries after a huge spike in demand.
However, Mr. Cain said he expects demand for online orders to pick up again and persist past the coronavirus crisis,
“The actual surge started in very late February, [but] March was far and away the biggest month,” he said.
However, despite analyst predictions of heightened growth persisting throughout the fourth quarter and even into the 2021 financial year, Mr. Cain said that had “not been the case” throughout April, with sales growth trending back down to around the 3.6% rate mark seen earlier in the year.
This was partially affected by the quiet Anzac Day and Easter holidays as families didn’t hold their typical gatherings due to social distancing restrictions, he said.
“We won’t know until the next few weeks as to whether things are going to remain elevated or whether they will go back to pre-COVID levels,” he said.
Earnings could also be damaged by lower margins across liquor and food, it warned.
While a rise in unemployment could boost sales of Coles’ higher-margin own-brand products, the company said it would also look to put more items on promotion to create better deals for customers.
Elsewhere in the business, liquor sales also jumped 7.2% to $740 million despite being subdued slightly by the residual effects of the bushfires in January and floods in February and March.
Coles and Woolies are progressively easing their customer limits on essentials as part of a slow easing of restrictions on activity.
