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Why has the Coles (COL) share price dived?

Posted: 17 June 2021 1:43 pm

Shares in the supermarket giant have risen 7.8% over the last 12 months.

As one of the bulwarks of Australia’s retail industry, supermarket giant Coles (ASX: COL) is normally among the top traded stocks on the ASX boards. However, investor sentiment in the stock took a hit on Thursday. At the time of writing, Coles shares had slid by a steep 3.9% to $16.40.

Why the Coles stock price is dropping today

The Coles share price has likely suffered following an update by the company at its investor day on Thursday.

The supermarket chain benefited from the panic buying during the pandemic, but in reality COVID-19 cost the company market share because customer traffic has gradually shifted from CBD locations to suburban neighbourhoods, where it has fewer stores.

Coles on Thursday said its market share dropped by 1.3% during the pandemic, and the business is now looking to reverse that trend by focusing on online shoppers.

Chief executive Steven Cain said Coles will spend significantly on items such as better online shopping capabilities, data systems and new self-serve checkouts, with $1.1 billion earmarked for the current financial year and another $1.4 billion next year.

“There are plenty of opportunities, and we think we have got the assets, I think it’s more making sure we have the confidence we have the right returns before pressing the accelerator – and I think what we are saying today is that we are pressing the accelerator,” he told investors on Thursday.

Costs to weigh

Other plans include converting up to 300 service desks to meet click-and-collect orders, setting a goal for a 90-minute order-to-pick-up service.

Coles is also accelerating the rollout of its small store suburban format across 3 states across Australia.

As a result of these investments, the retailer expects to book between $1.67 billion and $1.72 billion in depreciation and amortisation in the 2022 financial year.

While the investments are good news, investors are likely worried about the additional costs, including depreciation, that will weigh on the bottom line over the next couple of years.

There is also the more immediate concern of recovering share in the highly competitive supermarket segment, where both its major rivals, Woolworths and ALDI, have performed strongly in the past 12 months.

Those concerns are already reflected in the Coles share price, which has risen just 7.8% over the past 12 months. By comparison Woolworths shares were up 15%.

Considering buying Coles (COL) shares?

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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