Why did the Coles share price smash the ASX 200 in the first quarter of 2023?

The Coles Group Ltd (ASX: COL) share price beat the S&P/ASX 200 Index (ASX: XJO) return quite significantly in the first quarter of 2023.

Coles shares have risen by around 10.6% in the first three months, while the ASX 200 has gone up by 4.2%.

It has been a strong start for the company, more than doubling the performance of the index.

What has happened to the Coles share price?

The most important thing that the company has announced since the start of the year was its FY23 half-year announcement.

Investors often like to value a business based on how much profit it’s generating and expected to make. The business was able to reveal a good amount of growth for the first six months of the financial year.

Sales revenue increased 3.9% to $20.8 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 7.6% to $1.81 billion, earnings before interest and tax (EBIT) grew 9.9% to $1.06 billion, net profit after tax (NPAT) increased by 11.4% to $616 million and earnings per share (EPS) went up 11.6% to 46.3 cents. The dividend was also grown by 9.1% to 36 cents per share.

Seeing growth in all of those financial metrics is a good sign for the business and it also showed that each of the profit lines grew faster than the profit level above it – EBIT grew faster than EBITDA, NPAT grew faster than EBIT. It’s helpful to see scale benefits coming through for the company.

The business has managed to get through this period of high inflation – Coles’ supermarkets gross profit margin improved by 43 basis points (0.43%) to 26.5%.

Coles also revealed that in terms of the outlook, that supermarket volume growth returned to “modestly positive” from mid-January. That’s a positive sign for earnings growth in the second half of the year.

What is the outlook?

Investors are very future-focused, so commentary about the rest of the year could have been influential for the Coles share price.

It said that supplier input cost pressures “remain”, but inflation is “expected to moderate from the peak levels”. Coles is expecting more customers will be “value conscious” as cost of living pressures increase.

In the liquor division, it’s expecting earnings growth when it’s no longer competing against the COVID period and it’s focusing on building sales momentum.

The company is expecting to see the benefits of the automated distribution centres, with store deliveries starting in the fourth quarter of FY23 from the Queensland facility and ramping up from that date.

The business said that it’s well positioned and that it’s expecting population growth and moderation in out-of-home dining. These could help investor sentiment about the business.

Coles share price snapshot

While Coles has been rising in recent months, interestingly it is close to the same price that it was a year ago.

The post Why did the Coles share price smash the ASX 200 in the first quarter of 2023? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison 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 Coles Group. 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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