Underpayment issues take the shine off Coles' solid first-half profits
Supermarket giant Coles' respectable half-year result for the 2020 financial year has been marred by revelations the company underpaid its salaried team workers by $20 million in the last six years.
Coles' earnings before interest and tax came in at $725 million for the half, up 0.4 per cent on the prior corresponding half and at the upper end of the $710 million to $730 million guidance provided in early February.
Coles chief executive Steven Cain has steered the supermarket to a solid half-year result.Credit:Luis Enrique Ascui
Net profit after tax was $498 million, a drop of 34 per cent on the prior corresponding half, but an increase of 1.7 per cent when stripping out the earnings from its hotels business, Kmart, Officeworks and Target, which were transferred to former parent company Wesfarmers following Coles' spin-out in 2018.
Total sales for the 27 weeks ending January 5 was $18.8 billion, above consensus estimates of $18.7 billion, reflecting 3.3 per cent growth on last year.
However, the results were marred by the company's announcement that it had underpaid its salaried store members by $20 million over the past six years, joining rival supermarket Woolworths and numerous other retailers in underpayment scandals.
In Coles' key supermarkets division, sales were up 2 per cent on a comparable basis, with growth across both quarters, leading to 49 consecutive quarters of comparable sales growth.
Much of this was fuelled by the company's private label 'Own Brand' products, sales of which grew three times the rate of proprietary brands, up 6 per cent for the half, and for the first time achieved sales in excess of $1 billion for December
Coles also made inroads on its ambitious Smarter Selling initiative, which intends to see $1 billion of costs stripped from the company by 2023. A total of $95 million in costs were cut from the business, largely through supply chain efficiencies.
Performance in the company's liquor division, which includes brands such as First Choice and Vintage Cellars, was a dark spot, with comparable sales growing just 0.7 per cent and EBIT dropping 9.9 per cent to $67 million due to a large-scale range review and increased discounting.
Mr Cain also blamed poor weather conditions and bushfires over summer for the drop in liquor sales.
"People are eating out less during the bushfire period. They're spending more at supermarkets, but they appear, certainly in January, to be spending less on the alcohol out in the garden over the BBQ," he said.
For the first months of the new year, Coles said sales were "broadly consistent" with its results over the half, and noted there would also be "some impact" from the coronavirus as the supermarket was seeing delays in equipment being shipped out of China.
While Coles sources much of its food from Australia, Mr Cain said its newly established meat export business had also experienced some coronavirus-related delays, and said if the virus continued to impact Chinese manufacturing, the supermarket could run into problems with food packaging.
Coles shares dropped 0.77 per cent to $16.78 after market open. An interim fully-franked dividend of 30 cents per share was declared.