Coles share price slides 5% as inflation hampers FY23 growth outlook

The Coles Group Ltd (ASX: COL) share price is down 4.8%.

Coles shares closed yesterday trading for $19.35 and are currently trading at $17.79.

This comes following the release of the S&P/ASX 200 Index (ASX: XJO) retail giant’s full-year results for the 12 months ending 30 June (FY22).

Here’s what investors are mulling over this morning.

Coles share price dips despite revenue growth

• Sales revenue of $39.4 billion, up 2.0% from FY21
• Earnings before interest, taxes, depreciation and amortisation (EBITDA) of $3.4 billion, an increase of 0.2% from the prior year
• Basic earnings per share (EPS) of 78.8 cents, up 4.6% from FY21
• Full-year dividend of 63 cents per share (cps), fully franked, up 3.3% year on year

What else happened during the year?

Coles reported its Smarter Selling program delivered benefits of roughly $230 million over the financial year. The retailer said it was on track to deliver its four-year program of $1 billion of Smarter Selling benefits by the end of the 2023 financial year.

With another year of growth, Coles reported three-year headline sales growth of 12.0% in its Supermarkets segment, with 18.0% growth in Liquor and 8.1% growth in Express.

Capital expenditure in FY22 came out at $1.2 billion. The final fully franked dividend was 30 cents per share, up 7.1% from FY21.

As at 30 June, Coles had net debt of $506 million with net assets of $3.1 billion.

What did management say?

Commenting on the results, Coles CEO Steven Cain said:

We have now delivered the third year of our transformation strategy, including significant growth in our eCommerce operations, coupled with additional efficiencies from our Smarter Selling program. We continue to focus on delivery of our vision to be the most trusted retailer in Australia and grow long-term shareholder value…

The ongoing headwind of rising cost inflation further underscores the importance of our Smarter Selling program. The commissioning commencement of three of our four automated distribution centres and online customer fulfilment centres in 2023 will also allow us to drive future efficiencies while delivering an enhanced offer to inspire customers.

Coles chair James Graham added, “The need for the Group to evaluate and respond quickly to a changing operating environment has never been more important as we focus on ensuring value for customers in an inflationary environment.”

What’s next?

Looking ahead, the Coles share price could be facing some headwinds after the company said both its Liquor and Supermarket sales growth are expected to be impacted by the cycling of COVID-19 lockdowns in the first half of FY22 and price inflation in the second half of FY22.

The retailer expects Express weekly fuel volumes and sales to benefit from increased mobility, though the size of those benefits depends on fuel costs.

Property earnings in FY23 are forecast to be slightly lower than in FY22.

Coles noted that inflation is impacting its cost base with increasing wages, rent, fuel, supply chain and capital costs, atop lingering impacts from COVID-19.

In FY23, Coles expects to open 20 new stores, close nine stores and renew approximately 40 stores in Supermarkets, and in Liquor.

Capital expenditure is expected to be between $1.2 billion and $1.4 billion, inclusive of its Witron and Ocado projects.

Coles share price snapshot

The Coles share price is up 1% in 2022, handily outperforming the 8% year-to-date loss posted by the ASX 200.

The post Coles share price slides 5% as inflation hampers FY23 growth outlook appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• Own Coles shares? Here’s what to expect from the supermarket giant’s FY22 results
• Earnings preview: Here are 3 ASX 200 shares reporting this week
• 3 ASX 200 shares inking new multi-year highs today
• Why did the Coles share price just smash its all-time high?

Motley Fool contributor Bernd Struben 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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