Coles share price struggles despite ‘strengthening sales trajectory’

The Coles Group Ltd (ASX: COL) share price is under pressure on Wednesday after releasing its first-quarter sales update this morning.

At the time of writing, shares in the supermarket and liquor store operator are down 1.8% to $16.30. The negative move positions the company’s shares 3.9% away from their 52-week low of $15.67. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is looking more lively, pushing 0.51% to the upside.

Investors are responding to Coles’ update with a disappointing tone today. But what could be influencing this response, considering group sales grew year on year?

Expectations give rise to disappointment

The Coles first quarter sales update was mostly positive in terms of growth — but investors are not content.

On a year-over-year comparison, supermarkets and express segments experienced growth of 1.6% and 8.4% respectively. However, the performance of the company’s liquor division might have dampened investor sentiment.

According to the release, liquor sales revenue ticked 4.3% lower to $836 million. The blame was put on Coles cycling comparisons to times last year when New South Wales, Victoria, and the ACT were undergoing COVID-19 lockdowns — a tailwind for drink sales.

Another possible culprit for the subdued reaction to the Coles share price today could be the expectations set prior to the release. For example, analysts over at Goldman Sachs had set the bar at a 2.5% increase in supermarket same-store sales and a more modest 1% decline in liquor sales.

As such, despite the positive commentary provided by the Coles Group CEO, Steven Cain, it appears investors are wary of the lacklustre growth presented.

After all, Coles currently trades on a price-to-earnings (P/E) ratio of nearly 21 times. Whereas, the industry average resides closer to 15 times earnings. Though, its larger Aussie rival — Woolworths Group Ltd (ASX: WOW) — fetches an even more premium 26 times ratio.

Will the Coles share price go higher?

Prior to today’s update, various brokers were at odds with where they thought the Coles share price could be heading over the next 12 months.

The most optimistic projection, given by Morgans, included a $20 price target. On the flip side, UBS analysts held a $16.23 target.

Now armed with fresh data, we could see analysts make revisions to their previous Coles share price forecasts.

The post Coles share price struggles despite ‘strengthening sales trajectory’ appeared first on The Motley Fool Australia.

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More reading

• Coles share price on watch following mixed first quarter update
• 5 things to watch on the ASX 200 on Wednesday
• Send in the drones: Why is the Coles share price taking off today?
• 5 ways to be carefree during the next ASX share market downturn
• Is the Coles share price a buy ahead of next week’s quarterly results?

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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