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Coles boss warns of rising inequality as COVID-19 panic buying spurs profit
The head of supermarket giant Coles has warned of deepening inequality between better and worse-off consumers as Australia's economic fallout from the coronavirus pandemic worsens.
Coles chief executive Steven Cain said while the government's actions had helped avoid some of the worst outcomes from the pandemic, millions of people will be tightening their purse strings in the months ahead despite others spending more than ever.
Coles has swung to profit growth for the first time in four years.Credit: Martin Keep
"We're heading into a situation where more people are going to be on tight budgets, while we'll also have people out there who aren't going to restaurants, aren't going overseas and have more money to spend on something nice from Coles," he said.
"It's still a tale of two cities, but one of the cities could be getting a lot bigger."
Fervent buying from all Australians during the coronavirus lockdowns helped the retailer swing its business back into profit growth for the first time in four years, with Coles' earnings before interest and tax (EBIT), excluding a range of significant items, up 4.7 per cent to $1.76 billion, a vast improvement on last year's 8.3 per cent decline.
Full-year sales rose 6.9 per cent from the year prior to $37.4 billion, with sales at Coles' supermarket sector up 6.8 per cent to $33 billion for the full year. Comparable sales for supermarkets grew 5.9 per cent.
Coles, along with rival Woolworths, has been one of the best-performing businesses during the coronavirus pandemic, with virus-fuelled panic buying of food driving the retailer to its highest quarterly sales figure in its history earlier this year.
On a statutory level, Coles profit after tax declined 31.8 per cent, but this number includes businesses no longer owned by Coles, including financial contributions from the Target, Kmart and Officeworks chains when Coles was owned by retail conglomerate Wesfarmers.
On a 'retail' basis, which excludes these contributions along with those made from its former hotels and fuel divisions, Coles' net profit after tax grew 7.1 per cent to $935 million.
Coles shares rose after the market opened but were down 1.32 per cent to trade at $18.67 in late afternoon trading. Analysts said the result was broadly in line with expectations but raised concerns about the company's $170 million in COVID-related costs, much of which it expects will persist into the new financial year.
Coles chief executive Steven Cain.Credit: Luis Enrique Ascui
Shareholder and managing director at White Funds Management Angus Gluskie said the result was largely expected, hence the relatively muted share price movement, and was positive in almost all aspects. "The strategies they've employed on the top line are working, the strategies they're employing on improving their procurement and supply are working, and we've seen that translate to an uplift in dividends," he said.
"Some of the complications coming through now in the current quarter in Victoria, along with the incremental COVID-related costs ... is a minor negative."
The retailer declared a total dividend for the year of 57.5 cents per share, with the final dividend of 27.5 cents up more than 14 per cent from last year, payable on September 29.
Liquor was a strong performer for the group, with overall sales growing 7.3 per cent on a comparable basis to $3.3 billion. Alcohol sales through the fourth quarter rocketed a massive 20.3 per cent, which Mr Cain attributed to more customers being at home.
"Some of the sales you're seeing are due to genuine business improvements, but some of the increase was down to people being at home rather than at pubs and clubs," he said.
Supermarket online sales grew 18.1 per cent for the year and now contribute to about 6 per cent, or about $2 billion, of the company's total sales. Online delivered a "modest" profit to Coles despite a significant drag to profitability due to the temporary suspension of the service in March and April.
A greater focus on digital is something Mr Cain expects will persist as a permanent effect of the pandemic, with the chief executive saying the digital changes were "here to stay".
The impact from COVID-19 is likely to be felt well into the 2021 calendar year, Coles said, with comparable sales for the first six weeks of the new financial year tracking up about10 per cent. Online sales are up 60 per cent, driven by demand in locked-down Victoria.
Mr Cain said he was still committed to returning the company to statutory profit growth by 2021 and also completing Coles' plan of stripping $1 billion in costs out of the business by 2023, with $250 million in costs reduced this year. However, the company noted timing may be dictated by COVID-19.
No further update was provided on Coles $20 million staff underpayment, but Mr Cain said he still expected the figure to stay at the $20 million mark.
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