Coles profit slips, feels virus impact

Supermarket giant Coles’s statutory net profit fell in the first half, as it warned of disruptions in China caused by coronavirus.

A Coles supermarket in Brisbane. Picture: AAP

Supermarket operator Coles said statutory net profit fell in its fiscal first half, largely due to the accounting of its recent spin off, but that adjusted earnings rose slightly.

The result came as Coles said it faced a $20m bill for underpaying workers.

The company said statutory net profit in the six months to January totalled $489 million, a decrease of 34 per cent.

However, that figure included the Kmart, Officeworks and Target businesses in the prior corresponding period, which were transferred to Wesfamers prior to Coles being spun off from its former parent company.

On an adjusted basis, Coles said net profit excluding significant items and the impact of other accounting changes was $498 million, a nearly 2 per cent rise. Adjusted earnings before interest and tax rose less than 1 per cent to $725 million.

Previously, Coles said it expected provisional first-half earnings in the range of $710 million and $730 million. Adjusted sales revenue rose more than 3 per cent to $18.8 billion.

The company declared an interim dividend of 30 cents per share, in line with guidance given during the spin off.

Coles “delivered our demerger dividend commitments and are making clear, early progress on our strategy execution, particularly in supermarkets,” chief executive Steven Cain said.

Looking ahead, Coles said that same-store supermarket sales in the fiscal third quarter were broadly consistent with the levels achieved during the second quarter. It added that liquor earnings are expected to remain under pressure in the second half.

Coles disclosed earlier this month that same-stores sales grew 2 per cent in the first half and 3.6% in the fiscal second quarter.

Coles became an independent company in November 2018, at a time of increased competition in the Australian supermarket industry, where hefty margins had previously boosted profits of incumbents such as Coles and chief rival Woolworths.

Virus impact

Meanwhile Coles also warned that the coronavirus disrupting supply chains, factories and transport networks in China was delaying the delivery of key refrigerators to its supermarkets.

The retailer’s burgeoning food export business into China has also been impacted by the outbreak of COVID-19.

“Gross operating capex continues to be on track for $700 million to $900 million full year spend although coronavirus is delaying renewal refrigeration equipment being shipped out of China,” Coles said as it posted its December half results.

“Some impact is expected on the renewal program and export sales.”

Coles was on track to open a food export office in Shanghai by March as it looked to broaden a new export business selling premium food to Chinese middle class shoppers but those plans could now be disrupted by the coronavirus.

A number of Australian companies have warned this profit season of the impact to trading due to the coronavirus, including Cochlear, Blackmores and Nick Scali with businesses relying on supplies from China preparing for supply chain problems.