Coles share price: Full-year results preview

When will Coles report their FY20 results to the market?

Iconic supermarkets chain Coles Group (COL) is set to report its full-year (FY20) results, including fourth quarter sales figures next Tuesday, 18 August.

The company is also set to hold its Annual General Meeting (AGM) on 5 November.

Coles share price: the analyst view

The coronavirus pandemic thus far has proven to be both beneficial and detrimental to Coles. On the one hand, during the early stages of the pandemic shoppers flocked to both Coles and Woolworths, engaging in pantry stuffing activities which saw third quarter sales surge.

On the other hand, the pandemic has also seen costs rise – as supermarkets were forced to hire additional staff to deal with demand as well as undertake elevated levels of cleaning, security and changes to queuing systems as a result of Covid-19.

Despite those trade-offs, analysts remain bullish on Coles – assigning the stock an Overweight rating and a $17.96 price target, on average, according to the Wall Street Journal. On a more granular level, Coles has 7 Buy ratings, 4 Hold ratings and 1 Underweight rating, also according to the Wall Street Journal.

Macquarie remains Overweight heading into FY20 results

Analysts from Macquarie Wealth Management have remained particularly bullish on Australian supermarkets – arguing that increased volumes as a result of the pandemic should help push margins higher in the short term.

Overall, analysts from the investment bank argue 'that over the past twenty years, positive sales growth tended to result in stable margins, but falling sales had a sharply negative impact on EBIT margins.’

Even so, the investment bank warned that the market may be overestimating the operating leverage of Australian supermarkets, with the benefit of sales volume increases likely to be eroded over a longer time-span in response to elevated competition. Despite that, Macquarie has Overweight ratings on both Coles (Price target: $17.80) and Woolworths (price target: $40.50).

Elsewhere, in spite of the recent strong operating and share price performance from the supermarkets, Macquarie analysts do not believe that this will translate into higher dividends for shareholders, saying ‘We believe excess gross margin is more likely to be reinvested in the underlying franchise than distributed.’

Growth in Coles Group’s online segment has proven both impressive (up 34% in Q3) and a priority for the supermarket in recent times, with the company flagging that it was investing in online capacity in response to robust growth in demand.

Management expectations

Looking ahead, as part of the Q3, Coles management noted that during the early stages of the fourth quarter, Supermarkets comparable sales growth was broadly in line with pre-Covid levels. Elsewhere, management also noted that Liquor sales are expected to continue to benefit from ‘restrictions on hotels, pubs, clubs and licensed venue operators;’ though no concrete guidance regarding these benefits were provided.

Finally, by Macquarie’s own estimates, Coles is set to report overall group sales of $37,273 million, against an EBIT margin of 4.6% at the FY20 results.

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