Coles Group Sees Inflation Tailwind Through To 2023

Australian grocer Coles Group expects raw material inflation to continue through to fiscal 2023 and likely benefit its earnings, with eased COVID-19 curbs further boosting sales.

The country's no. 2 supermarket chain reported https://www.colesgroup.com.au/DownloadFile.axd?file=/Report/ComNews/20220428/02514421.pdf a 3.6% rise in third-quarter sales revenue on Thursday and said it had made a strong start to the current quarter thanks to the reopening of the economy and increases in product prices.

Inflation in Australia surged at the fastest annual pace in two decades last quarter as petrol, home building and food costs climbed, fuelling speculation of aggressive interest rate hikes by the Reserve Bank of Australia.

Coles' Supermarket division, which accounts for most of the group's earnings, saw prices jump 3.3% during the quarter, compared with a marginal decline in the prior three months.

"We continue to believe inflation is a tailwind for sales & earnings," analysts at Jefferies said in a note, adding that it was seeing retailers lifting shelf prices faster than wholesale price rises to stay ahead of inflation.

Sales revenue for the 108-year-old retailer came in at A$9.08 billion ($6.47 billion) for the quarter ended March 27, compared with A$8.76 billion a year earlier. The Supermarkets division contributed A$8.03 billion, a near 4% jump from last year.

The rise came even as adverse weather in New South Wales and Queensland disrupted supply chains and resulted in temporary closures of Supermarket stores in the two states.

Shares of the Melbourne-based retailer were down 0.6%, as of 0109 GMT, after edging 0.7% higher earlier in the day.

Larger rival Woolworths Ltd, which is also expected to benefit from higher raw material prices, will announce its third-quarter trading update on May 3.

($1 = 1.4041 Australian dollars)