Why is the Coles (COL) share price rebounding today?

Posted: 22 February 2022 12:58 pm
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Shares in the retailer are down 8% over the last 6 months but rebounding during this morning's trading.

Shares in major retailer Coles (ASX: COL) haven't had a great run in recent months as the threat of COVID-19 lockdowns has loomed. But the stock was bucking the trend on Tuesday, rebounding more than 2.5% to $17.16 amid a weak Australian market.

Rival Woolworths (ASX: WOW), which will outline its first-half results on Wednesday, was up 1.25%.

Why is the Coles stock price rising

Shares in the supermarket giant hit a nearly 6-week high on Tuesday after it reported first-half results that were not as bad as some had anticipated.

Coles reported sales for the 27-week period to 2 January rose 1.0% to $20.6 billion after a strong Christmas trading period in the supermarkets and liquor segments. Profit for the half-year was down 2.0% to $549 million, but was higher than analyst estimates.

It helped the company keep its fully franked interim dividend unchanged from a year ago at 33 cents per share.

Despite widespread lockdowns during the period in New South Wales, Victoria and the Australian Capital Territory, supermarket sales were up 1.1% to $18 billion. Liquor sales rose 2.7% to $2 billion while online sales surged 46% to $1.5 billion.

However, sales at its convenience store format Coles Express slid 8.5% to $578 million following mobility restrictions due to lockdowns in the eastern states.

"What these results show is that our strategy is beginning to differentiate us from our competitors," group CEO Steven Cain said.

Costs weigh

Coles said earnings were mainly hit by $150 million of COVID-related costs during the half-year period, an increase of $45 million from a year ago.

It also incurred $20 million towards its Witron and Ocado transformation projects. Another $13 million hit as a result of lower earnings from property operations, higher insurance costs and an increased net loss from its share of Flybuys customer rewards program.

The company is seeing higher costs continue, with another $30 million in COVID-19 related costs already incurred in January. But the retailer also benefited from elevated sales in early January amid the spread of the Omicron variant. It has also seen an impact on sales due to the recent floods in South Australia.

But Mr Cain told analysts that the company largely expects to benefit from the economy opening up and restrictions easing, which typically boosts local shopping.

Analysts at Jefferies called it "a solid, clean result" with the key supermarket and liquor businesses both performing better than expected with higher margins.

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