Earnings call transcript: Coles Group misses Q1 2025 revenue forecast

Coles Group Ltd (COL) reported its first-quarter earnings for 2025, revealing a revenue miss against analyst expectations. The company posted actual revenues of 10.96 billion USD, falling short of the forecasted 11.03 billion USD. Following the announcement, Coles' stock experienced a pre-market decline of 4.53%, with shares dropping from 23.16 USD to 22.11 USD.

Key Takeaways

• Coles Group's Q1 2025 revenue was 10.96 billion USD, missing forecasts by 0.6%.
• The company's stock fell by 4.53% in pre-market trading.
• E-commerce sales surged by 27.9%, offsetting declines in liquor sales.
• Supermarket inflation moderated to 1.2%, excluding tobacco.
• Coles introduced over 340 new products for the festive season.

Company Performance

Coles Group demonstrated mixed performance in the first quarter of 2025. While supermarket sales increased by 4.8% and e-commerce sales rose by 27.9%, liquor sales declined by 1.1%. The company continued to outperform the market with strong volume and transaction growth, despite facing a competitive grocery sector and easing cost-of-living challenges.

Financial Highlights

• Revenue: 10.96 billion USD, down from the forecast of 11.03 billion USD.
• Comparable sales growth: 4.6%.
• E-commerce sales growth: 27.9%.
• Liquor sales decline: 1.1%.
• Supermarket inflation: 1.2% (excluding tobacco).

Earnings vs. Forecast

Coles Group's Q1 2025 revenue of 10.96 billion USD fell short of the 11.03 billion USD forecast, resulting in a revenue surprise of -0.6%. This miss is notable compared to the company's previous quarters, where it often met or exceeded expectations.

Market Reaction

In response to the earnings miss, Coles Group's stock price dropped by 4.53% in pre-market trading, falling from 23.16 USD to 22.11 USD. Despite this decline, the stock remains within its 52-week range, which peaked at 24.28 USD and bottomed at 17.47 USD.

Outlook & Guidance

Looking ahead, Coles Group aims to maintain similar sales revenue growth levels while focusing on expanding its e-commerce capabilities and customer fulfillment centers in Melbourne and Sydney. The company is also preparing for the festive season with a targeted product range and promotions.

Executive Commentary

CEO Leah Weckert expressed confidence in the company's momentum, stating, "We are feeling that we have got good momentum going into the period." Chief Operations Officer Matt Swindells emphasized the ongoing efforts to improve product availability, remarking, "The availability job is never done." Chief Commercial Officer Anna Croft highlighted the company's innovative approach, saying, "We want to make sure that actually we put the right products in front of customers in a truly disruptive way."

Risks and Challenges

• Competitive grocery market pressures.
• Potential supply chain disruptions.
• Economic uncertainties affecting consumer spending.
• Challenges in maintaining growth in e-commerce sales.
• Managing inflation and cost pressures.

Q&A

During the earnings call, analysts inquired about customer retention following industrial action, the performance of customer fulfillment centers, and the company's strategy for store-specific product ranges. Coles addressed these concerns by emphasizing its focus on customer satisfaction and e-commerce growth potential.

Full transcript - Coles Group Ltd (COL) Q1 2026:

Conference Operator: Thank you for standing by, and welcome to the Coles Group First Quarter 2026 results. All participants are in a listen-only mode. There will be some opening remarks followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Leah Weckert, Coles Group CEO. Please go ahead.

Leah Weckert, CEO, Coles Group: Thank you, and good morning, everyone. Welcome to Coles' First Quarter Sales Results for the 2026 financial year. Before I begin, I'd like to acknowledge the traditional custodians of this land on which we meet today, the Wurundjeri peoples of the Kulin Nation. We acknowledge their strength and resilience and pay our respects to their elders past and present. I'm joined today by Charlie Elias, our CFO; Matt Swindells, our Chief Operations and Supply Chain Officer; Anna Croft, our Chief Commercial and Sustainability Officer; Michael Courtney, our Chief Customer and Digital Officer; and Claire Lauber, our Chief Executive of Liquor. Before I open it up to Q&A, I would like to make just some short comments on the results. I'm pleased to report another strong performance in the first quarter. In supermarket sales, increased by 4.8% and 7% excluding tobacco, with comp sales growth of 4.6%.

Our focus remained on ensuring our range and value offering resonated with customers. This was delivered through initiatives such as our Great Value Hands Down campaigns, promotional offers such as Shop, Scan, Win, and our European Glassware campaign. We also introduced popular product innovations, including the grilled retail range and Coles pistachio spread, which is already one of our top 10 selling spreads. We achieved our highest level of monthly availability since pre-COVID this period, which continues to build trust in the consistency of the offer with customers. We continued to see strong e-commerce sales growth of 27.9%. The performance of our CFCs was really pleasing, with CFC fulfilled sales continuing to outpace total e-commerce sales. We introduced new products into the CFC range, expanded our catchment areas in Melbourne and Sydney, and launched same-day CFC fulfilled deliveries for customers in Melbourne. In Liquor, sales revenue declined by 1.1%.

Ongoing softness in the liquor market continued through the quarter, with consumers remaining focused on value. We are pleased, though, with the customer response to our Simply Liquorland banner simplification, with 112 stores now converted since the program commenced. Overall supermarkets inflation, excluding tobacco, moderated to 1.2% from 1.5% in Q4. Inflation in fresh produce eased due to plentiful supply. We are keeping an eye on inflation in meat categories, particularly red meat, and we have seen beef and lamb livestock cost of goods increasing. However, we are investing in this area to reduce the impact for customers. Looking ahead, supermarket sales revenue growth has remained at similar levels to the first quarter.

The market continues to be competitive, and as we enter the festive season, we are focused on providing inspiration for Christmas at home and delivering value to ensure our customers can make the most of every dollar they spend. In Liquor, the market remains challenging, with consumers remaining budget conscious. With the warm weather and festive season approaching, we are focused on ensuring we have the right range and value proposition to cater for all entertaining occasions. As part of this, we plan to complete almost all of our remaining Simply Liquorland store conversions by the end of the calendar year. Just a reminder, over the next two months, both supermarkets and Liquor will be cycling the competitor supply chain industrial action that occurred in Victoria, New South Wales, in November and December last year.

However, we are pleased with the momentum we have heading into that, and we feel we have a strong trade plan for the next few months. Thank you, and I'll now hand back to the operator for Q&A.

Conference Operator: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We ask today that you please keep to one question per person. If you wish to ask further questions, you may then rejoin the queue. Your first question today comes from Sean Cousins with UBS. Please go ahead.

Various Analysts, Analyst, Various: Great. Thank you. Just a question, Leah, maybe just around the broader competitive position of Coles. Are you sort of seeing your prices sort of lower or in line with Woolworths and then maybe how you sort of see yourselves relative to other competitors across our e-commerce warehouse? I'm just curious around how Coles is managing a more promotional Woolworths or one that's got better availability now and how you're sort of finding that from a competitive dynamic perspective in supermarkets, please.

Leah Weckert, CEO, Coles Group: Thanks for the question, Sean. First of all, I'd probably say it's definitely competitive out there at the moment, and we are keeping a very close eye on pricing. I'd say we've been quite nuanced in the way that we're thinking about the right competitor by category when we're looking at price. We do know that cost of living challenges are still very much front of mind for our customers, and that weekly offer is really important. We are very focused on having the right mix of promotions, but also everyday low price. We actually have increased the number of products that we've got on everyday low price over the course of the quarter, but also what we've got on down down so that when customers are comparing us to competitors, and those competitors vary by category, overall we compare very favorably.

I think I would say we're seeing all retailers make investments in price at the moment to drive traffic, and we've been very clear that we intend to remain competitive on price. Where we have been needing to make changes, we have done so. I think at the moment we're comfortable that we know what matters to our customers, that we understand that through the work that we're doing week in, week out with surveys and focus groups, and that we're investing in the right places to keep that momentum going.

Various Analysts, Analyst, Various: Fantastic. Thank you.

Conference Operator: Your next question comes from Michael Samosas with Jefferies. Please go ahead.

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Good morning, everyone, and well done on a great quarter. Following on from Sean's question, we heard from Woolworths yesterday that they took some action in September around price and availability and was wary about focusing on very short periods. If I look at your sales cadence through the first quarter and into the second quarter based on what you've said and do the same for Woolworths, you're still taking share, but it does look like Woolworths has closed the gap a little bit. Is there anything you're noticing in your business across any of the categories that suggests that you may be losing some of this trading advantage relative to your major competitor?

Leah Weckert, CEO, Coles Group: Thanks for the question, Michael. I would say if we were to look across the quarter, our sales growth momentum was very consistent, and that has slowed on into Q2 very consistently. We are also seeing it across the board. It is not something where we would call out there are particular categories that are outperforming or underperforming for that matter. It is a consistent outperformance that we are seeing versus market, and we do think we are outperforming market at the moment based on all the data points that we can see.

I think what's really pleasing in the shape of the sales that we've seen for the quarter and then the first four weeks of Q2 is we've got strong volume growth, and you really see that in the numbers if you look at the sales ex tobacco at 7% for Q1, and then you look at the inflation ex tobacco at 1.2%. The difference between those two is a combination of mix and volume, but most of it is volume. We have really good volume growth. Part of the thing that is driving that is transactions. Our transaction growth at the moment is very strong, and that's a combination of both new customers that we are seeing shop with us, but also our current customers shopping with us more.

Across the quarter, we would say that we're feeling pretty pleased with the sales shape that we're seeing.

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Okay. Thank you.

Conference Operator: Your next question comes from Tom Currat with Barrenjoey. Please go ahead.

Tom Currat, Analyst, Barrenjoey: Morning, Leah and team. I'm just one on the liquor business. I think at the August result, you said the comp there was kind of flattish. It's kind of negative 1.4% for the quarter. Is that broader kind of market weakness, or is it, I guess, the disruption from maybe changing the stores over or converting the stores? Can you maybe just flesh that out in a bit more detail, please?

Leah Weckert, CEO, Coles Group: This might be a good one for Claire to take for us. I'll hand over to Claire to manage this one. Yeah, thanks for the question, Tom. We did benefit from the cycling of CrowdStrike outage in the early part of the quarter in the first eight weeks. As we know, the market still remains really challenging with consumers limiting their alcohol consumption and seeking value. That is why we're remaining focused on our Simply Liquorland program and ensuring we have the right range customer value proposition. Really pleasingly, we're seeing positive responses from customers through our strong NPS metrics and our strong loyalty metrics. I think we have the right balance.

I think on the disruption point, Tom, obviously when you put a store through conversion, you do see a little bit of disruption, but I would really say it's very much at the margin. Actually, the positive benefit that we see post-conversion is definitely the more significant contributor that we're seeing to the sales line at the moment. I think in summary of all of that, I think the biggest difference between the first eight weeks and then the total quarter result is probably the cycling of CrowdStrike, which is about AUD 7 million impact last year.

Various Analysts, Analyst, Various: Got it. Great. That's clear. Thanks, guys.

Conference Operator: Your next question comes from David Arrington with Bank of America. Please go ahead.

Various Analysts, Analyst, Various: Hi, Leah. This may be a question for Matt. I'm not sure. You might want to answer it yourself. Availability, I mean, it seems to be the big buzzword right now in food retail. One retailer has got it, the other one doesn't. You've called out that your delivery in full-on time or default or whatever you call it. There's a lot of catch cry words out there at the moment for availability, but it's better than it's been since pre-COVID. Okay, what does that mean? I mean, what does it mean in terms of now you called out consumer trust, but it's got to mean more than that. How are you able to improve this availability? Is it these new ADCs that are kicking in? Where are you at right now in terms of this?

Because I'm assuming that you're only just starting the journey of getting the productivity from the ADCs. Where are we going to see this? I mean, obviously, we're seeing it in sales, but can we actually expect to see improved margin performance from this improved availability? Because my assumption is that the cost of moving a carton must be improving significantly as we go through this increased availability and improved default. Can you open that discussion up, please? This, to me, is probably where there's a bit of sugar there in terms of earnings. I know it's a sales call, but this is where there must be a bit of sugar there. If this default's continuing to improve as we're in the early stages of your ADCs, then obviously we'd like to see it in margins as well as just sales improvement.

If you could answer that, that'd be really appreciated.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Thanks, David, for the question. It's Matt here. I do like that when we do these calls, the questions obviously answer your ambition internally and get a bit more pressure. Thank you very much for that. The availability piece has been a long road, and I will describe it in two parts, really. It is really pleasing that we are back to pre-COVID levels. I would think of that in two ways. The first is the result of the changes we made to the operating model. If you think about a year ago, we went to functional expertise. That is the commercial teams, the supply chain teams, and the store operations teams really getting back to being in the detail of how a retailer runs. I would describe that as an improvement of the one percenters.

That is better planning, better collaboration, better forecast, better store execution. That consistent approach has definitely driven a part of the improvement. If you think about a business of our size and complexity, there is always more to be done there. That will continue, the one percenters. The second part, as you have rightly said, is some of the benefit from the structural change we have made through automation. We know that our ADCs have produced 20% better availability, almost 30% on promotional lines by having the range in full closer to the stores and on a higher frequency.

The CSCs, while they're delivering a perfect order that's twice the rate of the stores to the customer, are taking that demand that would have been in stores for home delivery accounts, and it's freeing up the store teams, and it's freeing up the inventory in the stores for either immediacy or for store purchasing by our customers. That is making a big difference too. That capacity in our bigger traders, particularly on weekends in peak that the CSCs have absorbed, has moved the dial. I think over time, I've spoken about this before, we will optimize these assets in a more integrated way, and we will use data to make sure that we've got a really dynamic view of the right customer outcome and availability at the right efficiency profile.

We are at the start of our journey, and there is lots more to do that we are quite excited about. The availability job is never done. As we head towards peak trade, we are really pleased with where we are, but we are super paranoid that it could change very quickly. It only takes a rail outage or a big act of floods or fires, and we have to be prepared for that. We have lots of contingency, lots of focus, lots of people in process working with technology, and that is driving the result, and we think we can keep going.

Various Analysts, Analyst, Various: Seems like it's just not something you can turn on and off like a tap, Matt. It's something that if someone says, "We want to increase our availability," it's not something that you can just readily do. It's a long journey by the sounds of what you're talking about.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: It is, and it's more complicated than ever because if you think now you have to service an omnichannel customer that's got different levels of expectation on immediacy, click and collect, home delivery to purchase in store, all of those demand signals are coming from multiple places. You have to be able to respond really quickly. To do that, you need the technology and the automation, and you need the people that know how to optimize that. That takes years to really fine-tune. You can definitely get better, but whether or not you can get good enough is another matter.

Various Analysts, Analyst, Various: Sounds like you're executing really well, Matt. Thanks for your answer. Really appreciate it.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Thanks, David.

Conference Operator: Your next question comes from Adrian Lemme with Citi. Please go ahead.

Adrian Lemme, Analyst, Citi: Hi, good morning, Leah and team. I was interested that the Exclusive to Coles sales are growing a little bit weaker than the supermarket sales ex tobacco. I was just interested, are you starting to give more shelf space to brand, or is there something else driving this, please?

Leah Weckert, CEO, Coles Group: I might take that one, Adrian. It's Anna here. Thank you for the question. I think, first of all, we're pretty pleased with the own brand performance. What I would say is that we will always be customer-led on how we lay out our stores and how we think about the customer offer, regardless of where or the ownership of any brand. It has to be customer-first. I think if we look at own brand revenue, it's 5.3 in the quarter, but what we have seen in the quarter is continued strong promotional activity from some of the proprietary brands. That's been good in terms of driving prop growth and good for customers, but does, as we know, at times impact our own brand performance. Really pleasingly, Coles Finest continues to perform extremely well.

That was up 15% in the quarter and is playing a really key role for us at the moment around customers that are seeking restaurant-quality food to eat at home, but also will play a much stronger role in moments that matter for customers. I think kind of seasonally, Christmas, Father's Day, Easter, and we are pretty excited about what is to come there. We also believe this is a real point of difference for us and drives loyalty. I think where we are looking at it, probably more importantly than the growth rate, is what role are each of the brands playing and simply continues to grab our momentum at that entry price point for customers, making sure customers have no reason to shop elsewhere. We have got the tiering in terms of mid-tier and then finer. We are also pleased, I would say, with some of the non-food performance.

We are seeing it coming through strongly in such categories as kind of baby and cleaning, where we have some really strong brands through Ultra and Cub. They are really resonating. We have always got more work to do. We will always be focused on how do we get the right range, the right architecture, and value and quality. Pleased with the portfolio, always more to do, and we see this as a big opportunity into the future.

Adrian Lemme, Analyst, Citi: Thanks very much, Edda. Thanks for covering off on non-food too. Cheers.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: No problem.

Conference Operator: Your next question comes from Brian Raymond with J.P. Morgan. Please go ahead.

Tom Currat, Analyst, Barrenjoey: Morning. Just on the balance of 2Q, and you guys quite rightly called out industrial action needs to be cycled, and you called that out last year with AUD 120 million sales impact. Are you comfortable with that just sort of flowing back to Woolworths in order to maintain certainly a rational environment, or do you need to do something incremental? Is your ambition to continue to cycle over that and continue to outgrow your competitor? And if so, do you need to do something incremental to achieve that? Investment in Flybuys, maybe private label? Do you feel like some of what Woolworths is doing in terms of their investment, which they talked to you yesterday? Thanks.

Leah Weckert, CEO, Coles Group: Yeah, thanks for the question, Brian. I think when we think about that period last year, there were really three groups of customers that shopped with us during that period. There were customers who could not get what they were looking for at their local store, and that competitive store was much, much closer to them than what one of our stores would be. They came to us really as a bit of an emergency action. For those customers where they live a lot closer to a competitor store to us, that convenience piece will be the primary driver of where they probably choose to shop. It is likely a lot of those customers have reverted back to the behaviors that they had previously.

The second cohort of customers, though, were customers who were very loyal to our competitor, but they have a close choice between us and that competitor, maybe in a regional shopping center. For those customers, we really have been introduced into their repertoire of shopping over the last 12 months, and we can see from our data that we have retained some of them. The other place where we have retained customers is in the online space. When we look back, it was probably very fortuitous that the CFCs went live just before this happened. It did mean that a lot of customers who had had maybe a poor experience with Coles Online previously or had not shopped with us got the chance to try it coming into Christmas last year and found that they actually really quite liked it.

From the customer data, we can see that many of those customers have continued to shop with us over the last 12 months. I think as we cycle over this period, I do not think we have an expectation we can retain all of those customers that came, but we can definitely think that we have got some of that in there. I think what we are really focused on for this period is the things that we can control. We can control great execution, and availability is a big part of that. You have just heard Matt talk about the big focus that we continue to have in that space.

We know that builds trust with customers because there is nothing more frustrating than having a list of items coming into the store and not being able to find the thing that you want. We are also very focused on the value proposition. Obviously, there is a big component of that, which is price. We are focused on that, as I mentioned before, looking at a suite of competitors. We know that there are other elements of the value proposition that are equally as important. We continue to invest in our loyalty program. You have seen over the last couple of years, we have had some really good gains in terms of our active Flybuys members and the members that are actually engaging around redeeming dollars off shop in store.

We have also got a fantastic range of products, quite a few own brand ones in there as we come into Christmas, which we know are very convenient from the perspective as they ease the prep, but they are also fantastic quality with quite a few interesting elements to them as well. I think when you start to put that all together, we are feeling that we have got good momentum going into the period, and we have got a good plan to keep that maintained. Obviously, we need to go over the top of that industrial action, and we will focus on the things that we can control as we do that.

Various Analysts, Analyst, Various: Thanks, Leah. That's very clear. Would you be able to have a go at sizing each of those three buckets of customers by any chance? Is one particularly bigger than the other, or are they evenly distributed? How should we think about those three buckets you outlined before?

Leah Weckert, CEO, Coles Group: Yeah. I mean, I think probably when you put together the two where we think we've retained customers, that is a bigger group of customers than the ones that have reverted back.

Various Analysts, Analyst, Various: Okay. That's helpful. Thanks.

Conference Operator: Your next question comes from Caleb Wheatley with Macquarie. Please go ahead.

Caleb Wheatley, Analyst, Macquarie: Morning, Leah and team. A bit of a follow-on on the CFCs. Obviously, a positive signal to say that you've expanded the catchment area there and gone to same-day in Melbourne. Just be keen if you could provide any comments on capacity as you've transitioned to that same-day in particular in Melbourne and any shift, if there has been a shift, on customer performance, customer satisfaction metrics, please.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Yeah, Caleb, thanks. It's Michael here. Thanks for the question. If I heard you correctly, it was around level of capacity in the CFCs as well as customer reaction to it. Was that right?

Caleb Wheatley, Analyst, Macquarie: Yes, that's correct. If there's been any shift on customer satisfaction as you've gone to same-day?

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Yeah, sure. We're certainly seeing strong growth in the CFCs, and we have the capacity to do more volume. It is really pleasing to see that with that strong growth, a strong improvement in customer satisfaction as those orders have transitioned from stores into the CFCs. The reason for that is the experience that customers get through availability, through extended range, through increased freshness of the orders. I'd say all the indicators of what we're seeing through the CFCs at the moment, we're very pleased with because we know that it's providing a better customer experience. What's also relevant to that is the point that Matt mentioned earlier before as well, is that when those orders have transitioned into the CFCs, the NPS scores in those stores then go up as well because there's less congestion in stores, better availability.

I think that's really a testament to the fact of having a strong omnichannel offer and network.

Caleb Wheatley, Analyst, Macquarie: Yeah, it seems like it's really helping both the digital and the in-store. I appreciate the response.

Conference Operator: Your next question comes from Craig Wulfert with Macquarie. Please go ahead.

Various Analysts, Analyst, Various: Good morning, Leah. Can I ask a question around online? Maybe just stepping back a little bit. Obviously, great e-commerce sales growth of circa 28%. Is there any way you sort of feel where penetration rates may settle? How do we think about the outsized growth that may be attributable to the higher CFC capacity and just understanding the mix between delivered versus pickup in online?

Leah Weckert, CEO, Coles Group: Thanks for the question, Craig. I think, obviously, we're very pleased with the e-commerce growth. The CSCs, as Michael's just mentioned, are part of the outperformance there, but we are continuing to actually see growth across the board in all of our channels. Click and collect continuing to grow, rapid or immediate is also continuing to grow. Actually, the capacity that we've released in the stores as a result of moving the CSC volumes has really helped us to drive some of that volume growth from the store-based pick into the click and collect and rapid deliveries, which is fantastic. I think the question on where's the penetration going to settle is sort of a million-dollar question, right? I don't think we all really know where that's going to get to in Australia.

Obviously, the CFCs have helped us to do a meaningful pickup in penetration over the course of the last 12 months. What we continue to do is just focus on what we can do to ensure that the offer is something that customers are really satisfied with. As Michael said, one of the pleasing things as we've ramped up the CFCs has been seeing their customer satisfaction increase at the same time. Being able to bring same-day into that network, I think, is a great add for customers as well. I think whilst we're continuing to have capacity to continue to grow, and while we're continuing to consistently step on service, whether that's through the digital engagement on the website or the app, but also then in the experience that customers get with the order, I think we will continue to see growth in the area.

I think it's just we don't know where it will top out.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: I think Craig's only, I would add to that comment, is pleasingly when you look at the top-line growth, extra backup, 7%, we not only saw strong growth in the e-com channel, we actually saw strong growth in store as well. It was really across the board. It was really a strong omnichannel growth that we did see over the last quarter and into the first four weeks of Q2.

Various Analysts, Analyst, Various: Yeah. In the past, you've given us a pickup versus a click and collect proportion. Where is that sitting at the moment online?

Michael Courtney, Chief Customer and Digital Officer, Coles Group: It hasn't materially changed what we've talked about in the past. Craig, it sits somewhere between 60/40 or 65/35. That's really been the sort of home delivery versus click and collect percentages.

Various Analysts, Analyst, Various: Okay. Thanks, Charlie. Thanks, Leah.

Conference Operator: Your next question comes from Richard Bowick with CLSA. Please go ahead.

Richard Bowick, Analyst, CLSA: Good morning, team. Just a question on the CFCs again and the sort of shopping behavior that you're seeing. Can you give us a bit of detail around how, I guess, I don't know, how loyal those shoppers are? Just wondering if once people try it, what proportion of those people who try it once are going back, buying again, so it's repeat purchasing? Is there any sort of evolution that you can talk to in terms of basket size? From what you're saying, if it is delivering, the shoppers are seeing a better experience than a man who sort of tried it in something small and then go larger over time. Anything you can talk to there?

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Richard, it's Michael here. Thanks for the question. I think what you're asking there, some elements of that are how will we optimize over time? What we're really focused on at the moment is exposing more customers to the offer that is in the CFCs because, as I mentioned earlier in response to Caleb's question, we know when customers are shopping it that we're getting very high satisfaction scores. At the moment, our focus is having customers try the offer. When we see them try the offer, we're getting good retention of customers, which is great. We're also continuing to find ways to increase the units per order for customers that are shopping with because it really does cater to that big basket shop, which is a very valuable mission for us.

When we think about the different types of missions that customers have across immediacy, same-day and next-day, those next-day orders for us tend to be the larger shops and hence very valuable. The CFCs in Melbourne and Sydney are obviously now a key part of servicing that. We are really pleased that we continue to see increased satisfaction, which we think over time will just continue to lead to more volume.

Various Analysts, Analyst, Various: Range, Michael, must be key there. Can you give us an update on the range, maybe I am making talks to you, count through the CFCs and how that compares to what would be an average store in the catchment of those CFCs?

Michael Courtney, Chief Customer and Digital Officer, Coles Group: We pride ourselves on being able to have our full range offered through the CSC, which is one of the key customer benefits. I would say that this is a space where we're still learning, Richard. There is opportunity for us to continue to expand range in the CSCs, and we continue to trial different concepts around that, whether that's expanding through areas like international ranging or whether it is how we might look to do events differently. These are things that the team are focused on trialing each quarter to see what works and what we can scale up. I think that is something that we do not have all the answers for yet because we're continuing to learn from the customer behavior, but it's something we remain focused on trying to get benefits from.

Richard, what we have reported in the past is the average SKU count's about 30% higher in the CFCs than they are in the average stores. So it gives you an idea of the sort of extended range that currently sits in the CFCs.

Various Analysts, Analyst, Various: Okay. All right. That's helpful. Thank you.

Conference Operator: Your next question comes from Ben Gilbert with Jarden. Please go ahead.

Ben Gilbert, Analyst, Jarden: Morning, team. Just interested in just some of the behaviors we have seen around consumer shopping habits. Obviously, finance is going phenomenally well, and you have obviously really sort of hit the ball out of the park with the tiering of private label. I think, Anna, you have talked to them in the past as consumer spending sort of normalizes, confidence improves as an opportunity to sort of uptrade, or people might move to more normal habits, which in theory, yourselves and Woolworths should benefit most from. We are seeing a bit of that in the U.K.

I was just wondering if you're seeing any signs of that happening now, a willingness to trade up, a willingness to add another item to basket, some more confident shopping, and how you plan for that, and specifically in the context of the work you're doing around store-specific ranging, where there's obviously been some quite large cuts in terms of ranging. I know there's a bit in there, but just effectively how you're planning for if we do see this upswing in behavior, is there any evidence of it coming through, and what sort of impacts do we think that could have to Coles?

Leah Weckert, CEO, Coles Group: Yeah, thanks, Ben. I'll start, and then I'll hand to Anna to just build on the store-specific ranging part. From a customer behavior perspective, the last cost of living survey that we have done just recently has indicated that we're starting to see a bit of a shift with behaviors, what we would describe as sort of normalizing back to behaviors that we saw pre-cost of living challenges. Some of the things that would feed into that is, first of all, a customer prioritizing their own time a little bit more, which means the extent of shopping around at lots of different retailers starts to reduce, and they consolidate shops because that's more convenient for them to do. We definitely see that playing out in the U.K. over the last year.

The other one, of course, is a bit of a reversion back to the same consumption that they had previously. That will be getting back to things that they may have cut back on during cost of living challenges like bottled water, but also things like eating out. We definitely are seeing that there's more customers telling us that as cost of living eases and sentiment starts to improve, they expect to start embracing that. Now, it's a real sweet spot for us at the moment because customers are feeling a little bit more confident. Coming into Christmas, they are more likely to do entertaining gatherings with friends, gatherings with families than they might have been willing to do last year because of budgetary constraints in the household.

That, we believe, is part of what is driving a stronger grocery market at the moment. As you rightly identified, there are lots of opportunities for us to be tailoring the range. As we start to go through this transition, I'll get Anna maybe to talk a little bit about that.

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Yeah, thanks, Ben. I think the way I think about it is we have to have the right tiering at every price point with the right quality and the right value in every category. That is going to be critical to make sure that we can tailor irrespective of where the customer is at at any given point and we future-proof ourselves. I think what we are really making strong progress on is that tailoring of the range. As I said in the release, we have landed probably about 70 categories to date now of our 200 that we will do on store-specific ranging.

To give you a bit of a sense of what does that mean and how we're looking to get very sophisticated on making sure we have the right customer offer, our range optimization tool now uses 10 different AI tools and looks at about 300 million data points. It is pretty sophisticated and much more sophisticated than we've been able to achieve in the past. What that means is we are getting the right range in the right stores coupled with the work we're doing on the right tiering across the category. I'd say we're seeing really positive results when it comes to customer satisfaction, particularly in the range that we have tailored and the categories.

There is a lot more to do, and I think we feel pretty excited about what can be achieved both as we go through all of the categories, but actually, we continue to optimize this technology. I think what really energizes us is how we link this back into an operational perspective to really step change that end-to-end piece as well, both from a customer but a business perspective. I might throw to Matt to just talk about how the range work is actually linking back into the ops side of things as well.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Yeah. Thanks, Adam. It's a good build on the earlier question that we had around availability. Once you start to have that level of store-specific ranging, you have to be able to execute it, and you have to be able to execute both the transition and then the ongoing complexity that that puts through the supply chain. Really, that's where we see the automation that we've invested in having further value because it can handle that complexity in a really consistent way and execute then for the store team members and for the customers and give us that consistency of availability in the new offer. It's quite a lot harder to do that in the old manual world.

Leah Weckert, CEO, Coles Group: that answer your question, Ben?

Ben Gilbert, Analyst, Jarden: Yeah, that's really helpful. If I think about it, again, in terms of the benefits as you as Coles sees, you get better engagement from a consumer around pricing and really having right product, right price, right time. You get less peaks and troughs through the supply chain, more consistency. You've got better cost management through the supply chain. Obviously, all that then wraps up in availability, which ultimately then improves your comps because there's less gaps on shelves. Is that conceptually how to think about the loop?

Leah Weckert, CEO, Coles Group: Yeah, that's a pretty good summary. The only thing I'd add is that it enables you to get the right shelf space by product in the store as well. You are more likely to hold the shelf capacity for the whole day and not end up with a gap, which you then have to fill, which uses store RAM. That is another efficiency benefit that we get out of it as well.

Ben Gilbert, Analyst, Jarden: Right. And you're sort of at the beginning of the journey, I suppose, like if you've done 70 of the 200-odd sites, you've still got a decent amount of runway to go.

Leah Weckert, CEO, Coles Group: Yeah, there's still a lot of opportunity. I'd say every time we do one, we learn, and then we iterate and build on the next one.

Ben Gilbert, Analyst, Jarden: That's really helpful. Thanks very much. Appreciate it.

Conference Operator: Your next question comes from Philip Kimber with AMP. Please go ahead.

Various Analysts, Analyst, Various: Hi, Leah. I just had a question around tobacco. I mean, you called out there a 57% decline in sales in the quarter, which I think is, if anything, accelerating the declines. Are there any signs yet of stabilization? When we think about over the coming year, is there a period where we start to cycle and potentially see some stabilization? I know it's only 2% of your sales, but it's still having a decent drag on your overall number.

Leah Weckert, CEO, Coles Group: Yeah, that impact, I feel, has largely happened post the implementation of the legislation, so sort of beginning of July. I would say it's actually been pretty consistent from almost day one. Although the drag number does look large, actually, the dollar sales that we're putting through on tobacco each week is almost rock solid, straight line through the whole of the first quarter and into the second quarter. We do feel like it has reached a stabilization point.

Various Analysts, Analyst, Various: Okay. So basically another until July next year and then it cycles on itself.

Leah Weckert, CEO, Coles Group: That's right.

Various Analysts, Analyst, Various: Yeah. Thank you.

Conference Operator: Your next question comes from Sean Cousins with UBS. Please go ahead.

Ben Gilbert, Analyst, Jarden: Great. Maybe a question for Anna. Can you talk a little bit about efforts to remove off-location displays? There appears to be a degree of discussion in the trade around this. How do you think about balancing the potential damage it could do to sales growth in terms of removing availability of product for some particular, I guess, expandable categories? I assume you're doing it because there's a benefit there. Hopefully, you can sort of talk a little bit about that, please.

Leah Weckert, CEO, Coles Group: Yeah, of course, I can, Sean. I think what I would say is we are looking at how do we use in a smart way our secondary space and location. The last thing we will ever do is impact sales. We want to make sure that actually we put the right products in front of customers in a truly disruptive way. That actually, as we're optimizing range, we're using the same thinking to optimize our secondary space, which actually should give better customer satisfaction, better uplift on the products we do, and should drive the top line harder. That is the work we are doing. There seems to be narrative in the supplier world, which actually is probably not representative of where we're going. The objective is how do we sweat our secondary space as much as we are sweating our total macro space?

How do we make that work for both sales and for customers? Actually, to drive an uptick in sales is the primary objective of doing that.

Ben Gilbert, Analyst, Jarden: Fantastic. Thank you for clearing that up.

Conference Operator: Your next question comes from Brian Raymond with J.P. Morgan. Please go ahead.

Ben Gilbert, Analyst, Jarden: Thanks for taking the follow-up. Just on LiCA, just the 60 conversions in the quarter of the Vintage Sellers and First Choice stores, what sort of uplift should we be banking on? Should we be factoring in? I think you mentioned Vintage Sellers has been pleasing, but not First Choice. I just want to understand sort of that in the context of the slowdown in overall sales momentum. Thanks.

Leah Weckert, CEO, Coles Group: Yeah, we have not disclosed the number, Brian. I mean, obviously, we have a business case around this, which drives a sales uplift across the network. To date, the conversions we have done are tracking in line with that. It is performing to expectations. I think the pleasant surprise in there has been that a number of the vintage sellers' conversions to liquor land sellers have performed probably ahead of where we expected them to be.

Ben Gilbert, Analyst, Jarden: Okay. Thanks.

Conference Operator: Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Michael Toner with RBC. Please go ahead.

Michael Toner, Analyst, RBC: Morning, team. Thanks for taking my question. I have another CFC question, and please correct me if I'm wrong, but I believe Sydney is still on next-day delivery. Is there a plan, sort of slash timeline, on moving to same-day delivery for Sydney? If so, could you speak to that? Just quickly as a follow-up on the move in Melbourne, I know that CFCs have typically been geared towards weekly stock-up type customers, but are you finding that you're able to service those weekly top-up and eventually maybe even rapid and immediate need type customers out of the CFCs where the margins are typically a bit thinner? You've spoken to the impacts on customer experience, but I'm sort of interested in how it might change the unit economics on top of sort of freeing up availability and customer NPS, as you've already highlighted.

Michael Courtney, Chief Customer and Digital Officer, Coles Group: Sure. Thanks for the question, Michael. As you've mentioned, the Sydney CFCs are just still on next day. At the moment, what we're doing in terms of introducing it to the Melbourne catchments is just seeing what is it that we're able to service in terms of same-day. That is determined by two things. Firstly, the level of demand for it that we have through the same-day offer, and then where can we have the cutoff times for same-day orders to be able to meet customers' expectations. Obviously, we can service much more orders if the cutoff is earlier in the day. We're trying to push the cutoff into later in the day. Until we land on what we think is the right offer that we can scale in Melbourne, we won't put those into Sydney. That is certainly the plan.

We're just trying to test it and refine it in one market. I think more broadly, our intent over the long term is to be able to maximize the capacity that sits in the CFCs as much as possible. The reason for that is because we do see it as being the best of our offer because of all the benefits through availability, through range, through freshness. It would be too early to call out where we see that as a mix over time, same-day or next day. What we are focused on doing as a team is looking to make sure we can expose it to as many customers as possible across different shopping missions.

Michael Toner, Analyst, RBC: Great. Thanks very much.

Conference Operator: Thank you. There are no further questions at this time. I'll now hand back to Miss Weckert for closing remarks.

Leah Weckert, CEO, Coles Group: Thank you so much for your time this morning. I think overall, we're really pleased with the quarter, particularly on the back of our strong value proposition and the strengths that we saw in e-commerce. We are excited to be entering the festive season. We have more than 340 new own-brand products and specialty drinks that have been launched as part of our Christmas range. We are really focused on being the place you come for inspiration for entertaining at home as we go through this period. Our Coles brand single smoked ham at AUD 8 per kilo is fantastic value. If you're looking for something a little bit special, a little bit different, then I would recommend you try our Coles Finest boneless chicken, which is stuffed with prosciutto-wrapped camembert cheese. It is a real showstopper for the center of the table.

Thank you, and I look forward to speaking to you again at our half-year results. I would like to take the opportunity to wish you all a happy and safe festive season. Thank you very much.

Conference Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.

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