Coles profit slips 14 per cent in first half-year result since Wesfarmers spin-off

Like-for-like sales at the major supermarket chain have slowed, and a restructuring impairment has dragged its profit down.

Coles’ like-for-like sales growth slowed in the second quarter of the first half of the financial year as the boost from its popular Little Shop campaign wore off.

The supermarket group’s profit slipped 14 per cent to $738 million in its first half-year result since being spun off from conglomerate Wesfarmers in November, weighed down by a previously announced restructuring impairment.

Like-for-like sales slowed from 5.1 per cent in the first quarter to 1.3 per cent in the second.

The company’s revenue lifted 2 per cent to $20.4 billion in the six months to December 31 on the back of a 3.1 per cent jump in supermarket sales to $15.7 billion.

Coles’ Little Shop campaign was a huge success for the supermarket group.

A previously-announced $146 million restructuring provision weighed on the balance sheet.

The pre-tax provision will allow Coles to modernise its distribution network over the next five years and includes the costs of exiting leases and making redundancies at existing distribution centres ahead of closures over the next five years.

Chief executive Steven Cain said it had been a solid first half amid challenging retail conditions and a drought that had placed pressure on fresh food categories.

“We have delivered strong cash generation, and we have a robust balance sheet which will enable us to reposition the business in the years ahead,” he said today.

On Tuesday’s decision to keep its $1-a-litre milk range despite rival Woolworths lifting its price, Mr Cain cited cost of living pressures for customers.

“That particular levy, or increase in price, wouldn’t actually do Coles any benefit,” he told analysts.

“We’ve been one of the main supporters of farmers, we’ve distributed nearly $16 million so far, but it’s important that we don’t disadvantage Coles customers.

“All milk brands should be covered and all retailers should participate (in lifting prices)... If that happens, we’d be very happy to participate in that scheme.”

Half-year liquor sales were flat at $1.68 billion, with New Year’s Eve excluded from the reporting period, while Coles Express sales fell 2.5 per cent to $2.8 billion.

Earlier this month, Coles signed a new $137 million deal with petrol partner Viva Energy, effectively removing the underperforming segment from the balance sheet, which means it will not set fuel prices and will instead receive a commission on fuel sales.

Coles was launched as a separate security on the ASX after being spun off from Wesfarmers.

Coles also reported $357 million of its interim profit is attributable to the Kmart, Target and Officeworks businesses, up until the date they were transferred to Wesfarmers.

Coles will not pay an interim dividend but noted Wesfarmers had indicated its interim dividend would reflect, in part, Coles’ earnings up to and including November 27.

Coles expects to pay its first dividend in September 2019, which will be a final dividend for the year ending June 30, 2019.

Coles shares traded at $12.59 before today's opening of trade, compared with the $12.49 listing price in November.

Coles said today it would not follow rival Woolworths and instead keep its $1-a-litre milk range, citing cost of living pressures for customers.

HY PROFIT DIPS AT STAND-ALONE COLES

* First half net profit down 14 per cent to $738 million

* Group revenue up 2.0 per cent to $20.35 billion

* No interim dividend

With AAP

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