Earnings call transcript: Coles Group Q1 2025 sees steady growth amid competition

Coles Group Ltd. reported a 3.4% increase in group sales revenue to GBP 10.4 billion for the first quarter of 2025. This growth was driven by a 3.7% rise in supermarket sales and a 3.4% increase in liquor sales. As a prominent player in the Consumer Staples Distribution & Retail industry, Coles maintained its market share and showed strong performance in its own-brand categories. The company’s stock experienced a slight decline of 0.47% following the earnings release. According to InvestingPro data, the company has demonstrated consistent shareholder returns, having raised its dividend for 6 consecutive years.

Key Takeaways

• Coles Group’s sales revenue grew by 3.4% to GBP 10.4 billion.
• Supermarket sales increased by 3.7%, while liquor sales rose by 3.4%.
• E-commerce sales saw significant growth, with a 25.7% increase in supermarkets.
• The company maintained its market share despite competitive pressures.
• Coles Group’s stock price fell by 0.47% post-earnings.

Company Performance

Coles Group demonstrated resilience in the face of a competitive retail market, achieving a 3.4% increase in group sales revenue. The company benefited from strong performances in its supermarket and liquor divisions, which saw sales increase by 3.7% and 3.4%, respectively. E-commerce emerged as a key growth driver, with online supermarket sales surging by 25.7%. Despite competitive pressures from specialist retailers and online platforms like Amazon, Coles managed to maintain its market share, particularly in own-brand categories.

Financial Highlights

• Revenue: GBP 10.4 billion, up 3.4% year-over-year
• Supermarket sales: Increased by 3.7%
• Liquor sales: Increased by 3.4%
• E-commerce sales: 25.7% growth in supermarkets, 18.2% growth in liquor

Market Reaction

Following the earnings announcement, Coles Group’s stock price saw a modest decline of 0.47%. The stock’s movement reflects a cautious investor sentiment amid a competitive retail landscape. InvestingPro analysis indicates the stock is trading near its 52-week high, with a P/E ratio of 25.76x, suggesting relatively high valuation compared to near-term earnings growth. The company maintains a solid dividend yield of 3.23%, while its total return over the past year has reached an impressive 36.64%. For deeper insights into Coles Group’s valuation and performance metrics, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Outlook & Guidance

Coles Group remains focused on enhancing value and customer experience. The company plans to continue optimizing its customer fulfillment centers (CFCs) and e-commerce platforms. The ongoing consolidation of the Liquorland brand across 995 stores is expected to drive further growth. With an InvestingPro Financial Health Score rated as ’FAIR’ and an Altman Z-Score of 3.82, the company shows stable financial positioning. However, InvestingPro data indicates that short-term obligations exceed liquid assets, suggesting potential areas for operational improvement. Coles is also monitoring potential indirect impacts from U.S. tariffs and anticipates improvements in non-food categories.

Executive Commentary

Leah Wickett, CEO, emphasized the importance of value, noting, "Value at the moment we know is absolutely top of mind for the customer." Chief Commercial Officer Anna Croft highlighted the significance of supplier relationships, stating, "We’re working really closely with suppliers... longer-term partnerships are incredibly important." Michael Courtney, Liquor CEO, remarked on market competitiveness, asking, "The number one reason for doing this is does it allow us to compete better in the market?"

Risks and Challenges

• Competitive pressure from specialist retailers and online platforms
• Potential indirect impacts from U.S. tariffs
• Market saturation in non-food categories
• Economic pressures affecting consumer spending
• Supply chain disruptions

Q&A

During the earnings call, analysts inquired about the benefits of the Vutron supply chain and the growth opportunities in home brands. Discussions also covered the transformation of the liquor business and the performance of e-commerce and customer fulfillment centers.

Full transcript - Coles Group Ltd (COL) Q3 2025:

Conference Operator: Thank you for standing by, and welcome to the Coles Group Third Quarter twenty twenty five Sales Results Call. Leah Wickett, Chief Executive Officer. Please go ahead.

Leah Wickett, Chief Executive Officer, Coles Group: Thank you, and good morning, everyone. Welcome to Colsa’s third quarter sales results for the 2025 financial year. Before I begin, I would 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 and Michael Courtney, our Chief Executive of Liquor.

I’m pleased to report solid growth in the third quarter with group sales revenue growth of 3.4 to GBP 10,400,000,000.0. Supermarket sales increased by 3.7%, underpinned by solid volume growth, and liquor sales increased by 3.4%. From a supermarket perspective, we are particularly pleased with this result given we were cycling over a very strong third quarter of FY twenty twenty four. Our two year growth rate is 8.9%. Whilst interest rates started to ease this quarter, it’s clear that customers remain value conscious.

We saw a positive response to our summer value campaign, coupled with continued growth in our exclusive Decoles portfolio, with sales up 4.5% overall and up 13.7% in our Finest Tier. Inflation metrics also remained broadly stable, with supermarkets inflation, excluding tobacco, of 1.1% compared to 1% in the second quarter. Inflation in meat and fresh produce were elevated but offset by a slight deflation in packaged goods. Higher coffee and cocoa commodity prices are still a watch out and are continuing to impact a range of products such as confectionery, boxed chocolate and coffee. In liquor, we reset our value offer across all stores to deliver a more compelling offer for customers.

This included the nationwide rollout of the Price Match Promise. We also saw a solid sales uplift from the new Tasmanian stores that we acquired at the end of last financial year. E commerce sales continued to grow strongly across the portfolio with 25.7 growth in supermarkets and 18.2% growth in liquor. We’re also really pleased with the performance of our CFCs. By the end of the third quarter, we had fulfilled 1,500,000 orders, with perfect order rates continuing to track at more than double the national home delivery rate.

Now for those of you on the call who are based in Queensland, you would appreciate that this period has not been without some challenges in terms of weather events. In February, Far North Queensland experienced severe flooding. And in March, Cyclone Alfred impacted Southeast Queensland and Northern New South Wales. As is the Coles Way, our team members came together to help ensure that their local communities had access to essential food and grocery supplies throughout these events as well as dedicating significant time and resources to assist with recovery efforts. These events, however, did have a minimal net negative impact on supermarket sales earnings, with the positive sales impact from pantry stocking and restocking being more than offset by store closures and damages, additional supply chain costs, stock write offs and natural disaster leave provided to team members.

The other thing I would like to highlight is that in March, we announced that we will be proceeding with the national rollout of our Simply Liquor Land program, converting vintage sellers and First Choice Liquor Market stores to the Liquor Land brand. We are really excited for this rollout as it will simplify the customer offer, align our product range, promotions and our Flybuys loyalty program and omnichannel services across the portfolio. This decision follows the success of our pilot program, where we saw increased brand awareness and customer engagement, repeat visits and greater shopping satisfaction across our trial stores. The bulk of the rollout is expected to be completed by the December 2025, and approximately $7,000,000 in transformation costs are expected to be incurred in the second half of FY ’twenty five. Before handing over to the operator for Q and A, some quick comments on recent trading.

In the early part of the fourth quarter, supermarket sales growth has remained broadly in line with the third quarter, with continued volume growth supported by a positive response from customers across our Easter offer, including our award winning Hot Cross funds and our own brand range. In liquor, we have continued to see positive sales growth underpinned by the success of our recent value campaigns and the addition of the new space over the last twelve months, including the Tasmanian acquisition. Thank you, and I’ll now hand over to the operator for Q

Conference Operator: Thank you. Your first question comes from Sean Cousins with UBS. Go ahead.

Sean Cousins, Analyst, UBS: Thanks. Good morning, Leah and team. Maybe just a question regarding the impact of Vutron and execution. I’m just curious the degree to which Vutron is assisting supermarkets, particularly around be it in stock availability, so we could actually sort of see some of the strong sales cycling sort of tough numbers is a function of Vutron sort of helping, the business out, please?

Leah Wickett, Chief Executive Officer, Coles Group: Sean, thanks for the question. So we do continue to be really pleased with the ramp up that we’ve seen both in Red Bank, which is now fully operating at Business Case, but, Kemps Creek as well. And in Kemps Creek, we’re definitely seeing the same set of outcomes that we saw in the rollout from Red Bank. But I might get Matt to maybe go into a bit of the detail around that.

Matt Swindells, Chief Operations and Supply Chain Officer, Coles Group: Yes. Sean, I would think of this in two areas really. The first is the structural benefits we get from Vetron. And specifically, we have the whole of the grocery range in the state, which means we’ve got 20% more frequency of deliveries into stores, specifically on the slower ranges that can be more susceptible to out of stocks. But it also helps us then build better, easier, store friendly palettes for the team.

And so we’ve got a structural advantage that definitely the store feedback and what we see in the metrics that maintain inventory, it makes it easier to work the store and it gives better availability. But I think secondly, as we’ve got now a fewer, bigger, bolder promotional plan, our ability to execute that consistently with a heavier stock weight, Btron gives us that ability to flow that product, better to the stores. So we’ve got structural benefits that help the team and we’ve got the ability to control the flow that helps the size of the offer and the execution of the plan. I’d add though that we’ve been really focused on the ramp up. So this is early days of our optimization and making Vetron really work end to end for our business across transport, the DC and the store.

We’re at the start of that journey and we see more upside in future. But so far, it’s very pleasing, and it’s definitely helping our execution.

Sean Cousins, Analyst, UBS: Great. Fantastic. Thanks, Matt. Thanks, Leah.

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

David Arrington, Analyst, Bank of America: Good morning, Leah. Look, Leah, this question is coming from a glass half full approach because I think your execution at the moment is probably as good as I’ve ever seen, Coles, right at this point. But from Homebrand. Now the Homebrand to me looks like, let’s not I’m not going to call it soft. I’m going to say area that you could drive more opportunity.

And just to call the numbers out, like Homebrand, four point five percent growth in the quarter, but your food sales were up 4.7% ex tobacco. And when you look at Coles Finest, up a remarkable 13.7%, that’s at that upper end of customers. So it looks to me that the lower end price or the entry point home brand is underachieving. Is that the right observation to think? Because now that to me sees an opportunity for you, that it could be an area is.

But what’s going on there? Because I would have thought in this area of shoppers wanting, you know, to get more entry level prices, is it is it nonfood that’s hurting you? Or what is it? Because I just think that the I’m surprised that home brand’s not doing a little better. I know it’s cycling a big comp.

I get that. But I would have thought that, that home brand in that quarter would be a little bit of an area that you’d be thinking, I could be doing a bit better. Love to hear your comments on that.

Leah Wickett, Chief Executive Officer, Coles Group: Thanks for the question, David. I think we would agree with you that we continue to see this as a real opportunity for us going forward. I think we are pleased with the number though. I mean, as you pointed out, it is cycling a very strong comp from last year. So on a two year growth basis, it’s growing at 15.9%, which is a really strong growth rate and significantly ahead of the two year growth rate for the rest of the business.

And I think what we’ve got happening in terms of the dynamics at the moment is we are seeing customers trade into more affordable options. And so own brand is very positive. But we’ve also got our proprietary brands, which are investing more into, promotional activity at the moment, and that is very attractive for customers. And we’ve also got the out of home, effect happening, which is customers are shopping at or they’re going out for meals less, eating at restaurants less, and cooking more at home. And when they’re cooking at home, they’re trying to recreate some of the experiences, that they have when they go out, which is one of the reasons that they tell us that they like to trade into the coal’s finest, area and why we’re seeing some of the strong growth there.

We are continuing to invest in the entry tier. So you would have seen in the release that during the quarter, we did add 50 more lines into the CoalSimply portfolio. And CoalSimply, you will probably have to remind ourselves, it’s only about 18 old. And so we are growing that. We’re growing recognition with customers.

We’re growing in terms of the understanding of what it is as range. And we definitely see that there’s strong potential for that going forward as we continue to put more and more of the right products in there and get the price and range hierarchy, right. I think one of the interesting things as well is some of the places that we are seeing real strength in our own brands. So one of them is Freezer. So Freezer is substantially ahead of the overall portfolio in terms of growth for own brand.

We have put a lot of new innovation, into that category, and I think it also speaks to the fact that customers are looking for convenience as well, which is where we are also seeing strong own brands growth, which is then in that convenience category, so the ready meals and family meals that we have in that space. But completely agree with your assessment, David, that there’s more opportunity, in there. But we actually think on a two year basis, we’re doing pretty well.

David Arrington, Analyst, Bank of America: Okay. Okay. Thanks, Lucia. Appreciate the answer.

Conference Operator: Your next question comes from Phil Kimber with A and P Capital. Please go ahead.

Phil Kimber, Analyst, A&P Capital: Hi, guys. Thanks for taking the question. Sorry, I missed the start. So hopefully, I’m not repeating a question that’s already been asked. But you mentioned in there deflation in the health and home category, sounds like it was greater in this quarter.

Is that, sort of is there something some sort of material price actions you’re taking there? I know it’s an area that you’ve called out in the past as as one where, market share might have moved to other players that naturally, with the right offer and price, should move back to the supermarket. So I just if you could, explain a bit more about that, that would be awesome. Thanks.

Leah Wickett, Chief Executive Officer, Coles Group: Thanks for the question, Phil. We have seen that non food space, in deflation now for the last couple of quarters. So it’s sort of not new news, but what I might get is Anna to talk about some of the dynamics. Yes, of course.

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Look, I think there’s no doubt we are seeing this as a highly competitive market and we’re seeing more competition from non food retailers than before such as Amazon, Bunnings and pharmacies, but we’re very aware of that. And we’re aware that obviously, supermarket is a total level of loss share, but we see that as a real opportunity. We are continuing to review our price, our ranging, our pricing architecture to a much broader range of competitors than we ever have done. And we are responding accordingly to make sure that we are delivering to customers. But we’re also really aware that value goes beyond price.

And then actually, we’re really working hard on how we can offer a broader range to customers, how we can use our e commerce, CFCs as well as the benefits of our Flybuys loyalty program. So actually, we’re starting to see benefits come through. And you may be aware, we’ve actually made some leadership changes very recently in our non food business and have appointed Leanne White, who was previously our GM grocery into that space. So as we build the new plan for the future, I’m very excited to see what she will deliver in that space. So it is very competitive.

We are reacting accordingly and we are energized by the opportunity it gives us for the future.

Phil Kimber, Analyst, A&P Capital: Thank you. So it sounds like there’s some more more changes coming as well with that management change that we should, you know, over time start to see.

Leah Wickett, Chief Executive Officer, Coles Group: Yeah. Definitely in the nonfood. In the nonfood space, we’re going to continue to to make sure that we’ve got the right price and range hierarchy to be able to compete.

Phil Kimber, Analyst, A&P Capital: That’s great. Thank you. Is it two questions, sorry, or one?

Leah Wickett, Chief Executive Officer, Coles Group: two question. Phil. So we might we might send you back to the end of the end of the queue. And if we have time at the end, we’ll come back. Thank you.

Phil Kimber, Analyst, A&P Capital: No worries. Thanks.

Conference Operator: Your next question comes from Tom Kirath with Baron Joey. Please go ahead.

Michael Courtney, Chief Executive of Liquor, Coles Group: Good morning, guys. Just a couple of questions.

Leah Wickett, Chief Executive Officer, Coles Group: We’ve lost you. Can you still hear me? Tom, we’re just gonna bump you down one, and we’ll we’ll come back.

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

Adrian Lemmy, Analyst, Citi: You back a bit off Phil’s question there about nonfood and and just your earlier discussion on ranging. So, yeah, I just wanna explore the potential for expansion of the private label range in those nonfood categories. From what we can see, the private label penetration is is very low in pets and somewhat in personal care, but a bit better in cleaning. So can you talk to the opportunities there? Because that would appear to be a way that you can maybe combat that share loss with offering some sharp pricing?

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Yes, happy to, Adrian. Look, I think as you would expect, we are looking where do we think we have the right opportunity to play from an own brand perspective and how we deliver true differentiation for customers. So we do see across all of that non food area an opportunity for own brand and we’re working through that and as you imagine Manushai to make sure that we can pull that up. But actually, I think it does give us an opportunity as long as we are focused on what is right for customers. So as we said, we’re working through that plan and you should start to see things flow in store in the preceding periods as we make changes of our offer there across not only our own brand, but across the branded portfolio and our range and pricing hierarchy as well.

Leah Wickett, Chief Executive Officer, Coles Group: Think the other place, just adding to that, Adrian, that we’re looking at where there are opportunities in the non food space is through the CFCs. So as we look to expand the range, in those, and you would have seen during the quarter, we did continue to get more new lines, into the CFC. We’re up to about 27,000 SKUs now in there. Predominantly, the ones we added in, though, this quarter were around food, so things like global and international foods. But we do think there’s a lot of potential there in the nonfood space as well because in nonfood, you typically have more of a tail, which is much more, effective for us to accommodate in the CFCs than it is in stores.

Adrian Lemmy, Analyst, Citi: That makes sense. Thank you.

Conference Operator: The next question is from Brian Raymond with JPMorgan. Please go ahead.

Brian Raymond, Analyst, JPMorgan: Morning. My question is around execution on self availability and the improvement you guys have seen year on year and how it’s contributing to sales. I think there’s two key factors that most supply feedbacks indicators, source specific ranging and and then the ADCs. I just wanna get a feel for how far through that SSR program you are, and also the degree to which the ADCs are helping. And then just the follow on from that is around the the the wage cost environment, you know, how do whether you need to add labor into the stores at all to really drive on self availability up towards Woolworths levels?

Yes.

Leah Wickett, Chief Executive Officer, Coles Group: Thanks for the question, Brian. I think the store specific ranging, program and actually, we’ve got a bit of a macrospace program we’re also implementing alongside that. That is definitely helping us to get the right facings and the right allocations in terms of space by category, which is helping with availability. Obviously, the ADCs are significantly improving the Queensland and New South Wales position. I think the other thing I’d probably put into the mix is we have made some organizational changes as well.

So we’ve created a center of excellence for, replenishment, which now looks after our demand and supply planning, and that was done towards the back end of last calendar year. And I think we would say that it’s really come into its own as we’ve gone through this heavy event period in the early part of this year, and it’s really helping us to to keep on top of availability and really get to problems quickly, lean in, and get them get them solved. So I think that that’s the third one in the mix. Anna, did you wanna talk to SSR and where we are on the journey on that?

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Yes. We’re still very early days. And I think if we take range more broadly, we’re absolutely focused on making sure we get the right customer offer in every category. There’s a lot of work going on there to bring the right innovation and remove duplication, but also tailoring. We did six additional ranges in the quarter.

So we still have got a long way to go to get to all the range that we want on there. And we’re continuing to optimize that. So the results are very encouraging, but we still think there is more in that as we learn and we play with the big data model that’s driving that. So great progress in the MSA program. So the macro space program is now starting to gather some momentum as well.

So we’ll look to see how that plays out over the rest of the year and what we’ve got the plan for next year as well. So we’re pleased. There’s a lot more to do, and I think we’re taking it more holistically from a total customer offer, but one element is obviously the SSR.

Sean Cousins, Analyst, UBS: Excellent.

Conference Operator: Your next question comes from Tom Kerrath with Barron Joey. Please go ahead.

Leah Wickett, Chief Executive Officer, Coles Group0: Morning. Sorry. Have you got me there, Leah?

Leah Wickett, Chief Executive Officer, Coles Group: Yes. We can hear you loud and clear. Hello.

Leah Wickett, Chief Executive Officer, Coles Group0: Sorry about that. Yeah. Just had one on Ocado. I thought there might have been a bigger bump in online sales in the quarter given this is the first quarter that you’ve had it in. Just be interested in what you’re seeing around, like, new customer, I guess, recruitment, basket sizes and the extended range performance that I think you’ve rolled out through Ocado.

Thanks.

Leah Wickett, Chief Executive Officer, Coles Group: Yeah. Great question. I mean, I think from a growth perspective, in H one, we were at 22.6% growth for online. And then in, quarter three, we’ve stepped that up to the 25.6%. So we have seen a step on, and we are definitely getting the highest growth rates out of, Victoria and New South Wales, which is really fueled by the CSCs, which are performing a lot stronger in terms of home delivery growth than the other states.

But Matt, did you want to give a bit of a detail around kind of the different attributes that Tom just went through?

Matt Swindells, Chief Operations and Supply Chain Officer, Coles Group: Yes. Look, I think for the overall growth, there’s probably three areas, that are around including our CFC that we saw driving growth in the quarter. We did also deliver, more enhancements to the customer experience. So we we deployed what we call due to buy, which provides personalized one to one recommendations and essentially helps customers if there are items they may have forgotten to add them back into basket. So that front end experience is still driving growth.

We’ve also had a better trade plan, and that included our very first app mega sale where we had products, we had transactions, and we had subscriptions all bundled as part of an offer. And we actually now have over 50% of all of our transactions are going through the app. And then the final part is capacity. Yes. Some of that comes through the CFCs.

They are growing faster than Rest of Nation in next day delivery. We’ve got twice the perfect order rate of the Rest of Nation. And as Leah mentioned on the 27,000 SKUs, if you were previously shopping our Richmond dark story in Vic and you’re now shopping the CFC in Victoria, you’ve got double the range. So that’s double the range, double the perfect order rate with the improvements in freshness. And interestingly enough, we’re seeing new customers new customers to Kohl’s, and we’re also seeing a higher retention of those customers.

Once they shop the CFC, they are stickier than others. So all of those metrics are headed in the right direction. But I would point out, we really did the transition and the ramp up just before Christmas, at Trader Christmas. There’s a lot more still to do. The final part I’d add is we also expanded our immediacy offer.

So Rapid is now available at 80% of the population. And that plays back to our strategy where we think about the omnichannel customer and the omnichannel operation to support it. The CFCs are growing, in line with what we expect, and we’re very pleased with it. But there are other levers that we’re pulling to as part of an overall plan.

Leah Wickett, Chief Executive Officer, Coles Group0: Great. That’s good color. Thanks, guys.

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

Adrian Lemmy, Analyst, Citi: Good morning. I’m just being interested in some comments on where you see your market share trend through the quarter? We’ve spoken a little bit about health and home, but also, in some of the fresh categories, given it looks like specialists have continued to perform very well, over the last couple of quarters.

Leah Wickett, Chief Executive Officer, Coles Group: Yeah. It’s a it’s a good question. I I mean, I think, as you know, it’s it’s sort of notoriously hard to get full rates on on market share, and we’ll probably need a couple more data points to come out before we can, have a really firm view on it. I think our sort of overall view would be that we’ve at least held our own in terms of market share, for the quarter and maybe stepped it on a little bit from where we were in Q2.

Sean Cousins, Analyst, UBS: Okay. Thank you.

Conference Operator: Your next question comes from Lisa Ding with Goldman Sachs. Please go ahead.

Leah Wickett, Chief Executive Officer, Coles Group1: Hi. I had a question on, I guess, the early trading, into fourth quarter. So I appreciate it’s early, but I would have thought that third quarter last year was, you know, a very strong quarter, and the fourth quarter was easier comps. And with, you know, both CFCs, both ADCs, and then the Easter shifting into fourth quarter, we would actually be looking at accelerated growth into the fourth quarter. How should we think about, like, the shape of that maybe through the quarter?

Or was there phasing in the prior year that we should consider?

Leah Wickett, Chief Executive Officer, Coles Group: Mean, Lisa, we’re sort of four weeks into what is a very noisy quarter because of the Easter dynamics in there. So don’t think we’ll be giving any more color than what we’ve already put into the outlook. But I think we’re pleased with the momentum that seems to be continuing in terms of underlying trade into the fourth quarter once we control for the Easter effects.

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

Leah Wickett, Chief Executive Officer, Coles Group2: Good morning, Sam. Maybe some for Anna. Just interested around EDLP in non food and and specifically how you’re thinking about that? Because you look at your promo share on some of those categories in dishwashing or pet, etcetera. Now there’s an argument that you could match some of your newer competitors on a EDLP price, and your ASP might actually be higher.

I’m just interested in sort of where your thinking is around that opportunity. And also, if the court case that’s coming up around pricing is a bit of an impediment to actioning anything before that if you were

Adrian Lemmy, Analyst, Citi: to do a bigger push?

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Yes. Thank you, Ben. I think as we think about non food, we’re taking a total holistic view to, how we’re thinking about the strategy and execution. So EDLP will form part of that, but we will meet the customer where they are and how the best way to compete against the major competitors. So there’s no doubt that has been a highly intensive promotional area for some time.

We’re just looking at what’s the best way to navigate that means we can deliver an exceptional customer offer every time to the customer that they need it, whether that’s online or in our stores, and we’ll be working through that. So you are right. There is a different a different makeup of the competitive set versus some of the other categories, and we’re very conscious of that.

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

Leah Wickett, Chief Executive Officer, Coles Group2: My question is just on the supply chain and dual running costs that you previously called out. These would be wound down by the end of this financial year. You’ve mentioned the closure of the manual DCs in New South Wales. Does that account for the majority of those dual running costs and so it’s largely been derisked now, or how should we be thinking about those costs as we go into the fourth quarter, please?

Michael Courtney, Chief Executive of Liquor, Coles Group: Yeah. Well, Caleb, absolutely. As we called out previously, all those sort of one off implementation and dual running costs, they will be out, in the FY twenty six numbers. So they’re absolutely out in FY twenty five. The dual running costs were $30.26.

In terms of, you’re right. The closure of the DCs occurred in January, so those costs are pretty much behind us.

Leah Wickett, Chief Executive Officer, Coles Group2: Great. Thank you.

Conference Operator: The next question comes from Craig Wolford with MST Marquee. Please go ahead.

Leah Wickett, Chief Executive Officer, Coles Group3: Good morning, Leia and and team. Can I just ask a question about promotional investment? There’s two parts to it. One, on the fresh side, there was a few key products, red meat, some key fresh produce lines that have seen significant increases in wholesale prices. While there is higher fresh inflation in your numbers, it doesn’t look too material.

So has there been some sort of absorption of those wholesale spikes in some of the fresh produce categories? And then just on the rest of the basket, are you seeing an increase in the proportion sold on promotion at the moment? Some of the retailers are saying baseline sales are down and promotional sales are up.

Leah Wickett, Chief Executive Officer, Coles Group: I think, you mentioned the increases in terms of commodity prices for both meat and fresh produce. I think on, meat, we tend to have a bit of a delayed effect that occurs in our business because we have large parts of those categories, which are actually on sort of longer term contracts, things like chicken and and pork and the like. And even in some of the categories where they’re on shorter periods in terms of price negotiations like beef, for example, it’s still in terms of months, that we we tend to negotiate prices ahead of actually getting getting the product. So there does tend to be a bit of a delay, in the meat space. In the fresh produce space, obviously, we’ve had a bit of disruption in the period because of the weather events.

Anna, did you want to talk to maybe a little bit of the detail around that?

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Yes, Cosik and Greg. As you say, we did see inflation step up in produce in the quarter, and that was predominantly due to cyclone output. I think it’s fair to say, we were pretty lucky on some key categories in terms of what we had in transit and in ripening centers and enable us to manage through it. That has always been some of these things, there is a bit of a lag that comes through in terms of those inflation numbers. And we’re certain seeing some planting gaps coming through now, particularly in things like beans and corn.

So we are watching very closely what happens with that and working how we manage that through. If I pick up in the broader basket in terms of your question on promotional participation, actually promo participation in the quarter was slightly down both on last year and the first half. And that really is a bit of reflection of the seasonal timing, but also some of the availability impacts due to cyclone Alfred. What I would say is actually, the customer behavior continues to be consistent with what we’ve been sharing with you for a couple of months now around kind of customer seeking value and we’ve been working really hard on promotional effectiveness, how we manage that through seasonal value, EDLP and simplification. So we are continuing to work on promo optimization and putting offers that really matter the most to customers in the right place, and we seem to be resonating really well.

So actually down in the quarter, but in line with the strategic plan we had.

Leah Wickett, Chief Executive Officer, Coles Group3: Right. Thank you.

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

Leah Wickett, Chief Executive Officer, Coles Group4: Good day. I just wanna talk about liquor. The, so at least relative to our expectations, the number came in a little bit softer. And I and I know well, I noticed that you talk about the the markets impacted by subdued spending. Do you have a sense there how you’re performing relative to the or wider competitor set?

Leah Wickett, Chief Executive Officer, Coles Group: Thanks for the question, Richard. I’ll ask Michael to to cover this one up for us.

Michael Courtney, Chief Executive of Liquor, Coles Group: Thanks for the question, Lee. Richard, we were actually really pleased with the number given, you know, from both a headline perspective and adjusted comp, we’re showing an improvement on in trend quarter on quarter, which I think is really positive for us. From what we can observe in the market data, our level of outperformance to the market increased throughout the third quarter, which shows that the market, you know, has remained subdued for the third quarter. But we’re really pleased with the direction that we’re headed in at the moment. There’s a lot of changes that we’re making to the offer to have a more simple and relevant offer for customers, and I think they’re responding to it.

Leah Wickett, Chief Executive Officer, Coles Group3: Okay. Alright. Thanks for that.

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

Sean Cousins, Analyst, UBS: Great. Thanks. Just a second question for Michael. Just the $7,000,000 rebrand cost in the second half to go to Liquorland, and that will continue into the first half. Should we just assume the first half ’20 ’6 million will be another $7,000,000 Or will you accelerate that?

Just keen to get a bit more clarity on what that impact will be for the six months into December 25, please.

Michael Courtney, Chief Executive of Liquor, Coles Group: So we can provide some more specifics around the actual quantum of the probably the full year results, Sean, but I would think about, FY ’twenty six as being larger than the second half of FY ’twenty five, and the vast majority of those costs in FY ’twenty six will occur in the first half.

Sean Cousins, Analyst, UBS: Your

Conference Operator: next question comes from Brian Raymond with JPMorgan. Just

Brian Raymond, Analyst, JPMorgan: on the CFCs, back on the CFCs. What proportion of sales that you’re generating through there? Well, I acknowledge it’s early days. Just on the extended range, just interested as to what percentage of sales is coming from that extended range. Is it meaningful yet?

I noticed you got a big ski count. Are any of those meaningful contributors? If it’s possible to quantify that, that’d be that’d be helpful. Thanks.

Leah Wickett, Chief Executive Officer, Coles Group: Yeah. I think I mean, the first thing to remember is that what we’ve done is put the whole of the store network range in for the state. So it’s questionable whether you would describe some of those as extended range because you will find them in some of our stores, across Victoria or across New South Wales. But most stores would only have on average around 20,000 to 22,000 SKUs, whereas CFC when we started early days had around 24,000 SKUs. And then the ones that we’ve added in today, I would say they’re a very small part of the sales quantums at the moment.

They tend to be sort of more niche products, and we’re still going through the learning process around how do we fully expose them to customers and make sure that they can actually find them on the site. And I think there’s more to be done on that, and we’re sort of taking some learnings from others around how we can do that a bit more effectively. So at this stage, Brian, early days and pretty small.

Conference Operator: Your next question comes from Michael Samotis with Jefferies.

Adrian Lemmy, Analyst, Citi: Very much for taking another one. I don’t want to get too much into the minutiae, but you had quite a big sales acceleration in the latter part of the third quarter based on the update that you gave us for the early part. And then it seems to have moderated back to the average of the quarter again. Was that uplift sort of anything specific? Or is it more related to the weather events that you had that you called out earlier?

Leah Wickett, Chief Executive Officer, Coles Group: Yes. That’s a great question. So the let’s cover off the weather events first. So when you have one of those weather events, you’ve really got two effects that are impacting sales. So you have the panic buying and the stock up that occurs pre the event.

And then what tends to offset that is then store closures that we may have to do during the weather event or because of damage and flooding, post the event. So when we net those two impacts out across the three major weather events that we saw during the quarter, there was a very slight, positive, incremental sales, but it’s pretty immaterial in whole scheme of things. It’s actually more of the underlying sales that we saw strength in the last four weeks of the quarter. And I think we do just put that down to we were very, very focused on execution in the lead up to, the big seasonal events around Easter. So availability was a huge priority.

We had been very, very focused on what was the right value plan to load in to drive volume, and that all just came together really well.

Adrian Lemmy, Analyst, Citi: That’s really helpful. Thank you.

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

Leah Wickett, Chief Executive Officer, Coles Group2: Good morning. Thanks for taking another question. Just a quick one. Just interesting conceptually, I think in last few years, bit’s been talked about around sort of potential terms, differentials and opportunity for Coles. And obviously, you’re having some great momentum and execution looks sort of like it’s best in class.

And appreciate it’s probably been some more discussions more recently with suppliers around what opportunities there are. Hypothetically, if you were to be able to sort of start gaining some more terms, how do you think about balancing that between putting it back into price to continue to drive sort of price leadership in the market versus banking it?

Leah Wickett, Chief Executive Officer, Coles Group: Well, I think as we’ve said previously, value at the moment we know is absolutely top of mind for the customer. And we’re also very aware that we’re operating in a market at the moment which is more competitive than we’ve seen, I’d like to say probably ever, with the competition that we’ve got from the specialists, which I think I’ve mentioned before in one of the questions around the strengths that they’ve had in terms of the fresh food space. There’s more competition in the non food space. What we are really committed to as a business is making sure that we maintain our relevance to the customer and that we are competitive on the offer week in, week out. And so we are doing what we need to do to make sure that that is the case.

Leah Wickett, Chief Executive Officer, Coles Group2: It says supplier engagement to Coles. How how are you seeing that versus where it’s been historically? Are you seeing good engagement, good opportunities to to sort of drive some of these outcomes?

Leah Wickett, Chief Executive Officer, Coles Group: I might ask Anna to maybe comment on that.

Anna Croft, Chief Commercial and Sustainability Officer, Coles Group: Yes. Look, we’re working really closely with suppliers. Obviously, without suppliers, we don’t have a business. And we recognize that longer term partnerships and really deeply collaborating from end to end points of our business in a real three sixty way is incredibly important. So we’re yet to see the advantage survey, but we are certainly spending an awful lot of time in the restructure we did at the back end of the last calendar year to refocus the commercial team on kind of master merchants and putting in the incremental category managers was deliberately to step change our partnership with supply.

So I will tell you after the advance of survey, but we’re certainly working very hard on long term partnerships to drive differentiation and make sure we deliver both for our partners and for our customers and obviously our business as well.

Leah Wickett, Chief Executive Officer, Coles Group2: Fantastic. Thank you.

Conference Operator: Your next question comes from Lisa Ding with Goldman Sachs. Please go ahead.

Leah Wickett, Chief Executive Officer, Coles Group1: Hi. I had a question on potential impact from The U. S. Tariffs. I know that we probably don’t have material direct impact, but from a second derivative impact, whether it be input costs to some of our suppliers, potential freight costs that might be, you know, offset in our supplier costs, Are we having any conversations to see that potential cost inflation starting to come through for the nonfresh category?

Leah Wickett, Chief Executive Officer, Coles Group: It’s a great question, Lisa, and it’s a bit top of mind for us at the moment. You’re 100% correct that the direct impacts for us are minimal and immaterial. So that’s not a concern at all. It’s those secondary effects and indirect effects that we’re just monitoring and keeping an eye on. I think it’s probably too early to say the extent of where that is going to play out, I think our assumption base that there could be some cost of goods impacts across various categories.

Think one that we’re keeping a very close eye on at the moment is beef, particularly around sort of the demand that may come through the system for beef processing capacity here in Australia as a result of, particularly some countries pulling back from buying U. S. Beef.

Conference Operator: Got it. Okay. Thank you. Your next question comes from David Arrington with Bank of America. Please go ahead.

David Arrington, Analyst, Bank of America: Thanks, Leah. Leah, question to Mike Courtney. I’m trying to get my head around how much the Simply Liquor Land program is going to improve the overall liquor business. And Mike, if you can bring to life some of the findings that you had from your pilot, I mean, I’m sort of like a bit, at the moment, ambivalent as to why just changing the brand of Vintage Sellers and First Choice to Liquorland, how that’s going to help. And I know there’s costs upfront, which is discussed with Sean, but I’d like to delve into a little bit of the benefits that you’re seeing.

What benefits do you think that you’re going to be able to give customers that could step change liquor, as a business? If you could go through some of your findings from your pilot and bring to life some of the advantages that we can get our heads around, that would be really appreciated.

Michael Courtney, Chief Executive of Liquor, Coles Group: Sure. And thanks for the question, David. So I might start off just by describing the changes. It’s much more holistic to the offer than just a simple rebranding or changing the signage. And what I mean by that is, obviously, we moved to LIGOLAND as the master brand.

So immediately, a benefit of that is we’re able to be more focused with our marketing dollars. And one of the benefits that we saw in the South Australian trial is that through having one brand to market in the state, we were able to increase the brand awareness with customers in a relatively short period of time. So that’s certainly a positive in terms of customer awareness. The other changes are then in terms of value. So moving to, you know, one consistent price file and promotional program across all 995 stores is a benefit for customers just in terms of making our value simpler and more compelling.

It stops us competing against ourselves across three different brands in any given week or period, and that’s allowed us to take the best of, you know, what the offers are across the three banners and bring those nationally to customers. And the Price Match Promise is a great example of that where we had that only in First Choice Liquor Market, and now that is national and something that customers are responding to, and it’s improving our value perception with customers is which is certainly a key element in terms of consideration. We then look at range as well. So previously, the way we have ranged is there has been some range in our master ranging of Coles Liquor that would be restricted from certain banners. And what we now move to is we move to one master range with a core ranging that will sit in each store, and then we have overlays based on the store, which is affluence, demographics, geographic locations that will make sure that the range that we’re putting in stores is more focused on who that local customer is rather than just the sign that sits above the store.

So that’s another positive for customers and a and significant change to our offer. And then you look at loyalty. So we’re going from two loyalty programs down to one because Liquorland and First Choice have been on flybuys, whereas Vintage Sellers had its own loyalty program, and moving to one loyalty program was certainly a strong positive that we saw in the pilot. And then lastly, I’d, call out ecommerce or digital. At the moment, we’ve got three different sets of assets.

So there’s three different websites, for example. You know, moving to one website where we can continue to develop and improve that one asset will allow us to move quicker and make more change, for customers that’s more effective. So it’s quite a large change for what our customer offer is. And, you know, to go back to what your question was, which is what are the results that we’ve seen out of that? Well, I mentioned brand awareness has stepped on, which is great.

In terms of our range perception with customers, when we measure that throughout the pilot, that had improved as had our value perception, which is really key to getting more customers more often. So what we think we’re doing here is taking a step back and not just rolling out the liquor land offer to the other banners, but really taking a holistic step back from what our customer value proposition is and looking to improve that as much as possible. We saw positive results in terms of sales that was led by transactions, and that’s what’s given us the confidence to move forward and move forward at pace.

David Arrington, Analyst, Bank of America: It seems like it’s a blend of sales and efficiency. It looks like it’s a blend of both or equal blend. It seems like, given your answer then, Mike, is that a fair call? Or would it be more skewed to efficiency than customer traction? What what would you I know it’s a pretty hard question to answer, and maybe you’re not comfortable doing that.

But what would you overall?

Michael Courtney, Chief Executive of Liquor, Coles Group: It’s a good question, David. Naturally, there are benefits in terms of efficiency here, and I would say that that comes from some practices at the moment that we do three different ways. We’ll do those one way going forward, so that’s an efficiency benefit. I think there’s also a bit of an execution dividend that you get, David, when you go from anytime you have a good idea, we currently think about how do we do that three different ways. Now we think about how do we do it once, and so I think that will allow us to be more effective.

But, you know, whilst the efficiency whilst there’s a level of efficiency benefits there, and some of those, we will look to reinvest where it makes sense. The the number one reason for doing this is does it allow us to compete better in the market? Because in the market that we’re in, what we need is more customers more often, and that is the real driver behind what we’re doing here.

David Arrington, Analyst, Bank of America: Yep. Yep. Understood. Yep. Thanks, Mike.

Great answer. Thank you.

Conference Operator: There are no further questions at this time. I’ll now hand back to Ms. Weykert for closing remarks.

Leah Wickett, Chief Executive Officer, Coles Group: Well, thank you all for your time this morning. In summary, I’d say, overall, it’s been a pleasing quarter, particularly on the back of our strong value offering, including our value campaigns and exclusive brand portfolio. As well, I think the momentum that we’re seeing in the business, both in terms of the core trading as and the transformation projects and the impact that they’re having, on the business. We’re going to continue to focus on execution and delivering a superior experience for customers, and all of that will be underpinned by great products at affordable prices. Now I can’t finish up today without mentioning a significant milestone for the Coles Group, which is that James Graham is retiring today as our inaugural Chairman.

And on behalf of the 115,000 team members at Coles, I want to say a very big thank you to James for his amazing contribution to the business over the past seven years. His passion and enthusiasm will be missed. We’d also like to welcome Peter Allen into the role of Chairman from tomorrow, and we look forward to working with him. And with that, I look forward to speaking to you all again at our full year results in August. Thank you.

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

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