Company Reports

Coles' underlying net profit after tax increased 14% to AUD 1.3 billion in fiscal 2026. Profit margin expansion was driven by 3% higher sales revenue and a positive mix shift toward higher-margin supermarket sales. Operating efficiency gains offset wage inflation and underperformance in liquor.

Coles Group's businesses are defensive in nature, with its cash flow largely from consumer staples, which are relatively stable across the economic cycle. Coles also profits from negative working capital, allowing it to release capital as the business scales. The quality of these cash flows is high, and with cash generation of around 100%, we expect the dividend payout ratio to average over 80%. Coles' investment appeal as a defensive income stock is further underpinned by its strong balance sheet, manifested in investment-grade credit ratings from both Standard & Poor's and Moody's. Operating leases have an average lease expiry of around six years, providing the group with the flexibility to optimize its store network.

Coles' core supermarket business delivered fiscal third-quarter sales growth of 4%, supported by promotional activity and a brief spike in pantry demand as consumers worried about potential shortages due to the Middle East conflict. This lagged the 6% growth of Woolworths' supermarkets.

Coles Group increased sales by 3% in the first half of fiscal 2026. Efficiencies from newly commissioned warehouses and cost-cutting drove higher gross profit margins. Underlying NPAT increased by 12% to AUD 676 million. But sales growth is lagging Woolworths' and Endeavour's. Shares fell 7%.

Coles Group's businesses are defensive in nature, with its cash flow largely from consumer staples which are relatively stable across the economic cycle. Coles also profits from negative working capital, allowing it to release capital as the business scales. The quality of these cash flows is high and with cash generation of around 100%, we expect the dividend payout ratio to average over 80%. Coles' investment appeal as a defensive income stock is further underpinned by its strong balance sheet, manifested in investment-grade credit ratings from both Standard & Poor's and Moody's. Operating leases have an average lease expiry of around six years, providing the group with the flexibility to optimize its store network.

Coles' core supermarket business is thriving, with sales growing by 5% in the first quarter of fiscal 2026. By sales channel, online is vastly outperforming its physical supermarket network as it ramps up two dedicated automated warehouses.

Coles' statutory net profit after tax declined 4% to AUD 1.079 billion in fiscal 2025. But ramp-up costs of new warehouses, closure costs, and one week less of trading weighed. Adjusted for those items, net profit was up 3%. Share rallied 9%.

Coles Group's businesses are defensive in nature, with its cash flow largely from consumer staples which are relatively stable across the economic cycle. Coles also profits from negative working capital, allowing it to release capital as the business scales. The quality of these cash flows is high and with cash generation of around 100%, we expect the dividend payout ratio to average over 80%. Coles' investment appeal as a defensive income stock is further underpinned by its strong balance sheet, manifested in investment-grade credit ratings from both Standard & Poor's and Moody's. Operating leases have an average lease expiry of around six years, providing the group with the flexibility to optimize its store network.

Household incomes are growing in real terms after a period of rampant inflation. With inflation back within the Reserve Bank of Australia’s target range, the focus is shifting to keeping the job market in good shape. Monetary settings are slightly restrictive, providing room for more easing.

Coles Group's businesses are defensive in nature, with its cash flow largely from consumer staples which are relatively stable across the economic cycle. Coles also profits from negative working capital, allowing it to release capital as the business scales. The quality of these cash flows is high and with cash generation averaging over 100% in the five years to June 2028, we expect the dividend payout ratio to average over 80%. Coles' investment appeal as a defensive income stock is further underpinned by its strong balance sheet, manifested in investment-grade credit ratings from both Standard & Poor's and Moody's. Operating leases have an average lease expiry of around six years, providing the group with the flexibility to optimize its store network.

Coles' fully automated online fulfilment centers are ramping up. Its customers within the delivery catchments of these new warehouses in New South Wales and Victoria appreciate the improved selection and availability. Online supermarket sales are up 26% from a year ago.

Tariffs are softening Australian consumer sentiment and investors are preferring defensive over cyclical retailers. Since sweeping US tariffs were announced April 2, our Morningstar Australia Consumer Defensive Index is up 3%, but the Morningstar Australia Consumer Cyclical Index is flat.

US President Donald Trump's "liberation day" tariffs have rattled global markets. Tariff rates have been raised to levels not seen in a century, which will likely set in motion a cascade of supply-demand side shocks, all acting to weigh on the rate of economic growth.

Coles Group's businesses are defensive in nature, with its cash flow largely from consumer staples which are relatively stable across the economic cycle. Coles also profits from negative working capital, allowing it to release capital as the business scales. The quality of these cash flows is high and with cash generation averaging over 100% in the five years to June 2028, we expect the dividend payout ratio to average over 80%. Coles' investment appeal as a defensive income stock is further underpinned by its strong balance sheet, manifested in investment-grade credit ratings from both Standard & Poor's and Moody's. Operating leases have an average lease expiry of around six years, providing the group with the flexibility to optimize its store network.

Coles saw a 2% decline in statutory net profit after tax to AUD 576 million in the first half fiscal 2025. Operating and supply chain ramp-up costs increased, but were offset by better theft prevention. Coles stepped up while strikes plagued Woolworths, supporting supermarket sales up 4%.

Retail spending is rebounding due to a larger workforce, higher wages, and meaningful fiscal stimulus. Discretionary categories are benefiting more than defensives from rising household incomes. But online growth is diluting supermarket profit margins.

Coles is extending its private label range to offer better value for money to increasingly thrifty consumers. As for Woolworths, high cost inflation is the key near-term earnings headwind. But Coles is now reaping the benefits of recent investments in theft prevention technology, boosting profits.

Trading momentum for nonessential goods is picking up. So far in fiscal 2025, sales growth is improving at Super Retail’s chains and Woolworths’ Big W discount department stores, as well as at electronics goods retailers JB Hi-Fi, Harvey Norman, and Kogan.

Coles Group's businesses are defensive in nature, with its cash flow largely from consumer staples which are relatively stable across the economic cycle. Coles also profits from negative working capital, allowing it to release capital as the business scales. The quality of these cash flows is high and with cash generation averaging over 100% in the five years to June 2028, we expect the dividend payout ratio to average over 80%. Coles' investment appeal as a defensive income stock is further underpinned by its strong balance sheet, manifested in investment-grade credit ratings from both Standard & Poor's and Moody's. Operating leases have an average lease expiry of around six years, providing the group with the flexibility to optimize its store network.

We lift our fair value estimate on no-moat Coles by 3% to AUD 15.50, mostly reflecting the time value of money. Net profit after tax of AUD 1.1 billion comfortably beat our estimate by 5%. However, our earnings forecasts are largely unchanged. A challenging liquor retailing environment and higher interest expenses offset a slightly improved near-term outlook on supermarket earnings. We trim our fiscal 2025 and 2026 NPAT estimates by 3% and 1%, respectively.