Release Date: August 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Coles Group Ltd (CLEGF, Financial) reported a 5.7% increase in group EBIT from continuing operations to $2.1 billion and a 2.1% increase in NPAT to $1.1 billion on a normalized basis.
- The company achieved its highest-ever team member engagement score, indicating strong internal morale and satisfaction.
- Significant progress was made on key projects, including the commencement of operations at all four ADC and CFC facilities.
- E-commerce sales saw robust growth, with a 30.1% increase in supermarkets and a 9.2% increase in liquor on a normalized basis.
- The company declared a final dividend of $0.32 per share, fully franked, representing a 3% increase on FY23.
Negative Points
- The liquor segment faced challenges, with a 13.9% decline in underlying EBIT due to wage growth, fixed cost deleverage, and increased D&A.
- The company is still dealing with cost inflation and loss headwinds, which have impacted overall financial performance.
- Despite improvements, availability metrics are still below pre-COVID levels, indicating ongoing supply chain issues.
- The company expects significant implementation and transition costs for its ADC and CFC projects in FY25, impacting short-term profitability.
- The first eight weeks of FY25 showed a 1.4% decline in liquor sales revenue, partly due to the CrowdStrike outage, indicating potential vulnerabilities in the segment.
Q & A Highlights
Q: Are you able to talk us through how you're able to get the Victorian CFCs open six months ahead of schedule and how you're going to be marketing them?
A: Leah Weckert, CEO: We had an absolute laser focus on executing against the plan and looked for every opportunity to speed up the timeframe, reducing implementation costs. We won't be doing a lot of specific marketing until we've transitioned all postcodes. Ben Hassing, Chief Digital Officer: Our context is unique, emphasizing our established e-commerce business and omnichannel strategy.
Q: Could you please bring to life some of the things that you did to achieve cost savings efficiencies, particularly in wastage?
A: Leah Weckert, CEO: We saw strong sales performance and volume growth, with no negative impact from cost initiatives. Matt Swindells, Chief Operations and Sustainability Officer: We focused on tech solutions like Skip Scan and Smart Gates, and process improvements in range, space, and store operations. Simplify and Save initiatives included optimizing transport and store inventory, and improving online pick and pack efficiency.
Q: Can you talk through the sustainability of the food gross margin improvements?
A: Leah Weckert, CEO: Key elements include benefits from Simplify and Save to Invest, loss reduction, tobacco sales impact, growth in Coles 360, and Witron benefits. These are offset by continued investments in value to maintain a competitive position.
Q: What are your thoughts on the potential for further investment in Witron ADCs?
A: Leah Weckert, CEO: We are focused on ramping up the four transformational facilities currently open. We are pleased with the results from Queensland and expect similar outcomes in New South Wales. Future investments are being considered, but nothing to report yet.
Q: Can you confirm the $40 million operational cost impact for Ocado CFCs in FY25 and how quickly you can fully utilize the modules?
A: Leah Weckert, CEO: The $40 million reflects the in-year earnings impact. We expect volumes to fully ramp up by FY26, improving operational leverage. Our situation is different from international peers, allowing us to scale better.
Q: How should we think about the phasing of Simplify and Save benefits over the next three years?
A: Leah Weckert, CEO: We expect to achieve $2 billion in benefits over four years, with a relatively equal phasing each year, averaging between $220 million to $320 million annually.
Q: Can you provide more color on the outlook for D&A and financing costs in FY25?
A: Charlie Elias, CFO: We expect a step-up in D&A due to the full-year impact of transformation projects, with an $18 million increase from ADCs and CFCs. Finance costs will also increase, reflecting the full-year impact of the $600 million medium-term notes issued in November '23.
Q: Can you discuss the impact of instant redemption of Flybuys points on sales and profitability?
A: Leah Weckert, CEO: The rollout has increased customer loyalty and spending. Financially, the cost of points is accounted for at the point of sale, with no significant year-on-year change in the amount paid to issue Flybuys points.
Q: What is the outlook for inflation in grocery, excluding tobacco and fresh?
A: Leah Weckert, CEO: We are converging towards more normalized inflation rates consistent with long-term trends. Anna Croft, Chief Commercial Officer: We saw moderating inflation in Q4, with fresh produce moving into inflation and package inflation moderating due to cycling higher CPI from last year.
Q: Can you explain the impact of transitioning volumes to Ocado CFCs on store economics?
A: Leah Weckert, CEO: Transitioning volume releases capacity in stores to grow sales and allows for cost adjustments. The addition of Ocado is part of our omnichannel strategy, optimizing the entire network ecosystem.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
