Speaker #1: Michael Courtney, our Chief Customer Experience Officer, and Claire Lorber, our Chief Executive Leader. I'll start with a few comments on the quarter before we move into questions.
Speaker #1: We delivered supermarket sales growth of 3.6% in the first quarter, consistent with the growth achieved in the fourth quarter of FY26. This represents a two-year growth rate of 10.7%, excluding tobacco.
Speaker #1: This was achieved in a highly competitive market, with customers continuing to manage cost-of-living pressures and shopping more deliberately across retailers and channels. Against this backdrop, during the quarter we increased our investment in Coles Simply and our everyday value ranges, and customers continued to make greater use of our promotions.
Speaker #1: Engagement with suppliers also strengthened, with swipe rates increasing and the value of points redeemed up 16%. We continued to see strong momentum in some areas of the business, where we have been investing for growth.
Speaker #1: E-commerce was a standout, with sales increasing 22.9% and penetration reaching 15.7%, led by our CFC for field and immediacy channels. Our Exclusive to Coles portfolio also continued to perform well, growing ahead of total supermarket sales.
Speaker #1: We launched more than 80 new own-brand products during the quarter, and Coles Brands remained our strongest-performing tier, with sales growth of 13.3%. As discussed at the full year, we are continuing to invest in our store network and customer experience.
Speaker #1: We opened eight new supermarkets during the quarter, which is almost as many net new supermarkets as we opened throughout the entire year in FY26.
Speaker #1: We also completed seven renewals, are expanding our online capacity, and have commenced the rollout of electronic shelf labels. In liquor, sales declined by 1.3%.
Speaker #1: Our convenience portfolio remained in positive growth, and we saw improving trends across our warehouse stores—which is encouraging. Customer metrics also improved, with MPS reaching an all-time high, reflecting continued improvement in the in-store and online experience.
Speaker #1: Overall, there are areas of good momentum, but we recognize that in this competitive and value-focused environment, our sales momentum is not where we would like it to be.
Speaker #1: And we are taking action to sharpen our offer for customers and improve momentum as we come into the all-important Christmas trading period. We are stepping up our investment in value where it matters most to our customers and making that value clearer and more visible.
Speaker #1: As an example, last week we relaunched our Everyday Price program, where customers can count on six months of price certainty, and we are already seeing encouraging early signs from this.
Speaker #1: I'm sure you have also noted from our release this morning that, as a result of the targeted investments we are choosing to make in our customer offer, sales momentum—which is not in line with where we would want it to be—together with the higher fuel cost we have seen over the last two months, we are now expecting supermarkets' EBIT for the first half to be in line with the first half of FY26.
Speaker #1: Noting that we are cycling EBIT growth of 14.6% last year. In liquor, the sales revenue decline in the early part of the second quarter was broadly in line with Q1.
Speaker #1: We are encouraged by momentum in our convenience formats and the early customer response to our integrated food and drink offer, while remaining focused on improving overall performance.
Speaker #1: We know customers are under pressure, and we are confident that we have a strong plan in place to build their trust over this period for the long-term benefit of the business.
Speaker #1: And with that, let's move into questions.
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Speaker #2: The first question today comes from Peter Marks from Goldman Sachs. Please go ahead.
Speaker #3: Good morning, Leah and team. I'm just curious—could you give us a bit more color on what's happened in October? How much has that slowed?
Speaker #3: And I guess, how are you thinking about the second quarter? Because I think your comps are about to get materially easier going into November and December.
Speaker #3: Thanks.
Speaker #1: Thanks for the question, Peter. Well, as we've said in the outlook, sales growth—as we've gone through October—has moderated. This is Q1.
Speaker #1: But I would describe it as remaining resilient. I mean, we're not in a situation here where it's gone down into the 2s, and so it is still very resilient.
Speaker #1: And we've got a strong plan in place as we head into the back end of the year, which is giving us some cautious optimism that we will be able to get that sales momentum moving up.
Speaker #1: I think what we saw in October is that we do have a consumer who is very cautious. We saw sentiment impacted by the interest rate rise that came through, and so we know they are continuing to manage their budgets very closely.
Speaker #1: They're seeking out more value, buying on specials, and using more digital tools to help them identify where the cheapest price is. We are seeing them engage more strongly with loyalty programs; so Flybuys has seen some real step-ups in terms of swipe rates and higher opening of email offers.
Speaker #1: As we think about heading into the back end of the year, there are really three big things that we're focused on to give us that optimism around the improvement in sales momentum.
Speaker #1: I think the first one would be that we are stepping up investment in value, but alongside that, we're also strengthening the communications that we have around value in-store.
Speaker #1: So, we've currently got about 4,000 products on every day, and we did relaunch that program last week, which has meant there's a new add-in market.
Speaker #1: We've got more point-of-sale around the store, and we're more clearly calling out now the products that are on every day. And, alongside that, we've introduced a new mechanic, which is lower everyday prices.
Speaker #1: Which is actually a price drop, and then a commitment to hold it at that new price for at least six months. And then the second big area that we're really focused on is making sure that we land these Christmas customer moments as we head into Christmas.
Speaker #1: So if you go into our stores at the moment, you will see that Halloween is very much alive in-store. There's a lot of fun around things like the pumpkins, but there's also great value to be had in areas like half-price share packs.
Speaker #1: And the like. And then we've got Black Friday and Cyber Monday ahead of us. We've also got Christmas coming up, and this year we've rolled out our biggest Christmas range ever, including 200 products under $10.
Speaker #1: And then I think the third area that we're really focused on as we come into the back end of the year is relentlessly focusing on execution.
Speaker #1: And, as part of that, that's a focus on availability and making sure that the investments we've made in things like the ADCs and store tech are really getting us into the best shape we can for that Christmas trading period.
Speaker #3: Great, thanks, Leah.
Speaker #2: Thank you. The next question comes from Tom Kierath from Barrenjoey. Please go ahead.
Speaker #4: Oh, morning, guys. Just a question on the price investment and how to think about that annualizing through the second half. Is the way to think about, I guess, the change in outlook that the price investment is all in the second quarter?
Speaker #4: In other words, there wasn't much in the first quarter, and then, effectively, we should kind of double that investment for the second half. Is that reasonable to think of it that way, for the price investment side?
Speaker #3: Tom, thanks for the question. Charlotte here. Look, from my perspective, what we've given you today is really a perspective on the strong plan that we've put in place in terms of value and investment, and communicating that value as Leah outlined.
Speaker #3: Earlier, in relation to the first half, we have not given any guidance in relation to the second half. We believe we've got some strong plans in place through this festive season and the like.
Speaker #3: So, we're not—we haven't sat here to give you second half guidance in any form in that regard.
Speaker #4: So, can I clarify then that the price investment is all related to the second quarter? And there wasn't any incremental investment in the first quarter?
Speaker #3: Again, we are taking action on value both in the second quarter. We have obviously had value investment in the first quarter as well, but we are taking action in the second quarter.
Speaker #3: Including not only the actual value investment, but also how we are communicating that value through the mechanics that Leah outlined earlier.
Speaker #1: And, Tom, I think it would be fair to say that every year we put a plan in place around what the value investment would be.
Speaker #1: And so, coming into Q1, we were taking actions in line with that plan. For example, we made some investments into the Coles Simply range to sharpen that proposition at the value end of the range.
Speaker #1: But what we're indicating now is that we're just going to be doubling down in a few areas as we come into the back end of the year, really to get that sales momentum going in an environment which is very competitive at the moment.
Speaker #4: Understood. Thanks, guys.
Speaker #2: Thank you. The next question comes from Brian Raymond from JPMorgan. Please go ahead.
Speaker #5: Morning. I just want to sort of reflect on maybe the sort of post-ish period, so the five-week exit run rate for you guys, and then October.
Speaker #5: I know it's a bit rough, but on my estimates, I'm sort of estimating you guys are about 250 basis points below Woolies on sales momentum at the moment.
Speaker #5: I just want to understand the sort of rationale—or it's not the rationale, the drivers—of that, and how you're addressing it. You're obviously calling out value, which is important, but I don't necessarily think your prices are out of whack with Woolworths.
Speaker #5: I just wanted to understand if you think there's an execution issue; if there's a problem either in-store or online, or just really diagnosing that underperformance of late.
Speaker #5: It's only been a few months—I understand—but I'm just trying to work out, going forward, if that's something that's addressable without major price investment.
Speaker #5: Thanks.
Speaker #1: Yeah, thanks for the question, Brian. So I think, first of all, if we just take a step back, it's worth noting that we've had very consistent sales growth now for many periods on periods.
Speaker #1: And actually, when you take Q1, we're at a 2-year growth rate of 10.7%, which is very strong. And so there are definitely is a factor which is playing in here, which we have had strong performance for an extended period of time now, and we're still delivering consistent growth over the top of that.
Speaker #1: But the market is very competitive, and I think it would be fair to say that during this period, we have been transitioning away from down-downs.
Speaker #1: And that has probably—well, it has limited the amount of communication that we've been able to do around value in-store. As I said, we relaunched Everyday last week.
Speaker #1: That is giving us a new mechanism and a new set of assets that we're able to communicate in-store. And if you go in and see that now, you really are seeing that very prevalent in the store.
Speaker #1: We're much more focused on calling out everyday products on the shelf, and we've introduced things like value bays with very strong ends around everyday as well.
Speaker #1: So, I think having that in place now gives us a lot more confidence around the voice that we have around value, and obviously that's very important as we come into the back end of the year.
Speaker #5: And just the high-low from program, like that's the other important piece of it. Is there any change there? I've heard some multi-buyers might be changing—is there anything going on there that might be contributing to the underperformance?
Speaker #1: Well, actually, during Q1, we saw promo contribution step up a bit. So as we were transitioning away from Down Down, that promo contribution played a larger role in how customers were accessing value in the store.
Speaker #1: We would expect that it probably starts to normalize now as we see more activity in the everyday space as we go forward. But I wouldn't be calling promos out as something that we're concerned about.
Speaker #5: Okay. Thank you.
Speaker #2: Thank you. The next question comes from Sean Cousins from UBS. Please go ahead.
Speaker #4: Thank you. Maybe just further on the value perception. Sort of issues there. With your investments, do you believe that your given that you know your price is probably better than we can ever estimate, do you believe that you need to drop prices to be lower than Woolworths are?
Speaker #4: Where are you now relative to Woolworths? And is it really more meeting the market, or do you want to establish a lower price point? And how much of it do you think your value issues are price reality, relative to poor communication and a price perception sort of issue there, please?
Speaker #1: So, I think I would describe the actions that we're taking today as: we are taking a targeted set of actions here to get sales momentum building again.
Speaker #1: And we have moved early on, making the decision that we need to do that. As I said, the market is competitive, and as we have transitioned out of down-down, there has been some pressure on price indices.
Speaker #1: But it's not something that we're calling out as a problem here. What we are saying is that we're going to make some targeted investments in the right places as we come into Christmas, because we know that consumers are very value-conscious.
Speaker #1: It's likely they're going to be even more value-conscious as we head into Christmas. And so, doubling down on value at the moment makes good sense for attracting them into the store, because they are checking prices.
Speaker #1: Week in, week out. And so making sure that we've got the right pricing and the right promotions on lines that we know are going to be features of big baskets as we come into Christmas is really key.
Speaker #4: So sorry. And sorry, Leah, that suggests it's more of a you need to sort of communicate that there's some select price investment you're making, but it's more of a you have the wrong mechanism with down-down and every day will help, and you need to communicate it better.
Speaker #4: Is that the right way to read it? As opposed to, we just need to drop prices dramatically. It's more about, if you had to weight it, it would be more in how it is communicated and messaged to the consumer.
Speaker #1: Yes, I think that's right. Sean, it's a targeted set of investments, and then it's stepping up the communication that we are doing, because we now have confidence behind the set of mechanics that we can communicate to consumers, and we're confident around the compliance guardrails that we have around those.
Speaker #4: Great. Thank you.
Speaker #2: Thank you. The next question comes from Craig Woolford from MST Marquee. Please go ahead.
Speaker #6: Good morning, Leah and team. Can I just get some perspective on the dynamics that are leading to softer sales trends? I mean, is it items in the basket or number of transactions?
Speaker #6: And also, any comments on different categories within the store? Fresh, everyday, impulse—some of the categories are performing.
Speaker #1: Yeah, I'd probably actually say the biggest differential that we're seeing at the moment is probably from a channel perspective. So, the online growth for us during the quarter was very strong.
Speaker #1: And I might get Michael to comment a little bit on that. I think where we would say we're not happy with momentum at the moment is in the bricks-and-mortar sales.
Speaker #1: And as I've just talked through, we've made some significant changes in terms of how we're communicating value in the store across the board. In the bricks-and-mortar space, we've been very pleased with the early response that we've seen to that.
Speaker #1: Michael, did you want to talk a little bit online?
Speaker #6: Sure. Thanks, Leah. Well, as Leah mentioned, e-commerce growth for the quarter was very strong. I think what's particularly pleasing in that is that the growth is being led by Uber and CFCs.
Speaker #6: Which are two differentiated positions in the market, and we think they're giving us a clear growth advantage at the moment. I think the other thing that I would add, as we continue to grow in sales, is we're continuing to improve the profitability of the e-commerce business as well, which means our profit's growing ahead of where our sales is.
Speaker #1: And maybe just to round out, Craig, I think in terms of customers, we have been seeing them put more retailers into their repertoire.
Speaker #1: Every week, I think we saw that sort of come off a little bit as we came into Christmas this last year. But this year, ever since the start of the Middle East conflict, we've seen that as a really sort of prevalent consumer behavior.
Speaker #1: And so, we are continuing to see really good levels of customer count coming through the store. But we're seeing a lot more splitting of baskets.
Speaker #1: And so, with those targeted investments that we're looking to put in place, that's really about making sure that those high-volume SKUs—those that really form the core of the basket—that we are the destination for, coming to buy those.
Speaker #6: Yeah. And just on the fresh, added fresh perform.
Speaker #1: Yeah. In the release, we did note that Fresh outperformed the rest of the store, led by Meat and Dairy. So we saw strength in those two categories.
Speaker #1: Anna, did you want to make any comments on what we saw in those phases?
Speaker #3: Yeah, what we've seen is actually fresh, continually growing, and what's pleasing is MPS really accelerating in terms of quality and value metrics across the board.
Speaker #3: What we've seen, through really targeted investments for some time, has been meat accelerating ahead of total store growth. And that's important for us because it is the center of play and is the driver of store choice as well.
Speaker #3: So, we continue to double down on making sure we've got the best quality and unbelievable pricing in there. Dairy continues to be strong, and the protein trend remains.
Speaker #3: We have faced some availability challenges that have been more structural and across the market in dairy, but we're starting to see those come to an end. Actually, we're confident we can accelerate that growth further.
Speaker #3: And actually, produce has been strong in terms of quality metrics coming through as well. So we're pleased overall with Fresh, and we'll continue to accelerate as part of our transformation programs in each of those areas as well.
Speaker #6: Thanks for that, Anna. Thanks, Leah.
Speaker #2: Thank you. The next question comes from Ben Gilbert from Jarden. Please go ahead.
Speaker #6: Hi. Good morning, Tim. Just into my question—I'm just interested in what sort of changed over the last couple of months. And I suppose if I then play out in terms of where we're looking over the next six, it feels like Woolies are only really just starting to bank the benefits of COR, because they take a while to play through.
Speaker #6: And as I was just—a big ask, because we've sort of seen that in the press, it feels like they're going to continue to lean pretty aggressively into price and LSP.
Speaker #6: You've got Amazon that's flying, and then you've got a situation where you've got sort of tobacco and these sorts of things that maybe are going to help some of the indies, etc.
Speaker #6: So, I'm just interested in what's changed, and do you think the amount of money that's been put into price at the moment is enough?
Speaker #6: And are you getting a lot of support from suppliers to help fund over and above, to really get some price leadership back in the markets?
Speaker #6: I know it's a bit in there, but I'm just trying to play out what's happened and how this step change is looking over the next six to twelve months.
Speaker #3: Ben, I just want to quickly touch on where we are with suppliers. Look, I think what I'd say is we're very confident in the support we're getting from suppliers.
Speaker #3: We know we take a very collaborative approach with them, and we have long-term strategic sourcing programs now that have been running for a couple of years, and they are successfully running.
Speaker #3: And actually, all the joint business plans we put together with suppliers, in terms of acceleration of each of our lines, are coming through as we've planned.
Speaker #3: And actually, what we're increasingly focused on is building long-term plans with suppliers to drive accelerated growth and volume together, and mutual profitability. We're also working very end-to-end to take cost and complexity out of our system, so that together we can reinvest those efficiencies into value for customers.
Speaker #3: And what I would say is there's been a big change in recent months. We've seen a real appetite in suppliers to lean in with us.
Speaker #3: And that's not just in the near term, but on a long-term plan to truly accelerate volume and growth together. So we feel very positive about the future and the support we're seeing today.
Speaker #3: And I'm very energized about the opportunity and the way in which we are working with suppliers, as we move forward.
Speaker #6: And so, the step change in terms of the last month or so is that there's been a much bigger push around low shelf prices that Woolies are doing?
Speaker #6: Because our leads are still pretty benign, I think, in terms of growth out there. It really only seems that Woolworths has changed.
Speaker #3: In terms of the supplier sentiment, are you saying in terms of...
Speaker #6: Well, just in terms of the competitive backdrop, the terms in the competitive backdrop are why October shouldn't necessarily soften. Because, obviously, things picked up post all stores.
Speaker #6: I'm sorry to perpetually respect the Woollies, but obviously, the numbers are out this week. And then it's dipped again in October. I'm just wondering, is there a step change in promotional intensity?
Speaker #6: Do you think the market growth has slowed, or do you think you're saying—
Speaker #3: Well, what we'd say is, yes, the market is very competitive, and that's across every competitor we're seeing that. But also, that's coupled with the customer behavior.
Speaker #3: We are seeing that customers are seeking out greater value in some categories—they're trading down. And we are making sure that we really deliver for that value-conscious consumer.
Speaker #3: And where we need to rework plans and put more investment into core lines, we're absolutely doing that. But I would say the competitive market, coupled with consumer sentiment, has been where we're focusing our responses.
Speaker #1: And as we've already outlined, Ben, the step-up in value communication as we come into Christmas, we think, is an important part of that.
Speaker #6: Right. Thank you.
Speaker #2: Thank you. The next question comes from Adrian Lemmy from Citi. Please go ahead.
Speaker #4: Oh, hi Leah and team. Look, the market had about $80 million of EBIT growth in the first half in its forecast. So I'm just trying to understand if we can get a rough sense of the mix behind this downgrade.
Speaker #4: So you would have, obviously, the deliveries that you've talked about—particularly in stores—which looks like it's in negative growth now. You've mentioned the fuel impact, and obviously the targeted price investment.
Speaker #4: Are you able to provide any color on what the bigger drivers are in this downgrade, please?
Speaker #5: Yeah, Adrian. Thanks, Charlie. Look, Adrian, from our perspective, if I can be really sort of clear as well, in terms of the drivers of margin and drivers of EBIT, they haven't changed, right?
Speaker #5: And in terms of our SSI program, it continues and it's continuing strongly, and we're actually really confident it's going to deliver well over $1 billion.
Speaker #5: Which will benefit both margin and CODB. We did pull out good growth in Coles 360 in the quarter, and we’ve got some great plans to continue to grow that strongly.
Speaker #5: We do know, and you'll note, that we continue to work with our supplier partners in terms of strategic sourcing and some of the better buying that Anna outlined a little bit earlier.
Speaker #5: What we're really caught out by today—so if you think about the three elements that we've been caught out by today—really, there's an element where sales haven't been in line with what our expectations are.
Speaker #5: So we've been really clear on that. So there is an element of, if you like, the sales flow-through into EBIT. Secondly, we are announcing and we have announced, yeah, some targeted investments in areas to, yeah, to deliver value for consumers.
Speaker #5: Actually, meet the consumer where they're at—it's been really important. And the third thing is around fuel. The element around fuel, you recall back in Q4 last year, we called out that fuel would be about a $15 million impact for the half, for the second half of FY26.
Speaker #5: What we're saying here in terms of fuel—I just want to throw a number at it—is slightly higher than that $15 million that we spoke about.
Speaker #5: And what's really important, though, look, I think in terms of the guidance that we've given today, yeah, really, it is about the three elements that I've spoken about.
Speaker #5: And I think it's sort of worth noting, Adrian, when we look at the sort of the two-year basis, I mean, EBIT last year grew by 14.6% in the first half.
Speaker #5: So we are cycling strong earnings from the half. So, looking out on a two-year basis, I mean, we are talking about quite strong earnings over those two years.
Speaker #4: Thanks, Charlie. And can I clarify, yeah, my understanding on the in-store sales? Because the growth slowed to 0.6% in the first quarter. Am I right to believe that it's probably flat to slightly negative now, given the slowdown in overall trading and online still being strong?
Speaker #5: Oh, look, all we did, yeah, as we said, as we've said, look, your sales are not where we like. And certainly not in line with our expectations.
Speaker #5: And in-store sales, specifically—yeah, obviously—are down. I wouldn't go into the negative territory, but I think, as we said earlier, and Michael spoke to it, we have seen really strong growth in our online channels.
Speaker #5: And that's been important—and, more importantly, increasingly profitable.
Speaker #4: Thanks for that.
Speaker #2: Thank you. The next question comes from Michael Samotis from Jefferies. Please go ahead.
Speaker #4: Thanks very much for taking my question. Look, it sounds like you've got a plan ahead to try to address the lack of sales momentum.
Speaker #4: What do you do if you put these investments into price and work on communicating value, but your sales momentum doesn't turn? Because the operating deleverage in the business can be devastating.
Speaker #4: And we'll see the impacts of that in the first half. What do you do if you can't turn momentum? Do you just need to invest more?
Speaker #3: I think, firstly, I'd say that we have a degree of confidence that the plan is going to get us to a place where we need to be in terms of improving that sales momentum as we come into Christmas.
Speaker #3: And I'd probably say we've acted early here, right? Which we recognize. Over the last few weeks, we're not comfortable with where we're at.
Speaker #3: And so we're moving quickly to take action. We're not allowing it to get embedded, which is quite often more difficult than to get it to turn.
Speaker #3: And then I would say, from a risk around deleverage, cost control is one of our very strong muscles that we have built over time.
Speaker #3: And so, we have continued to take actions as we've gone through this quarter to further tighten our control around costs and to put more into SSI.
Speaker #3: That's a constant, always on for us to be asking: how does that equation work? And so that's really why, when Charlie outlines those three areas, they are very specific in terms of what is leading to us giving the EBIT guidance today—which is just around sales flow-through—because we're not where we want to be.
Speaker #3: It's some targeted additional investment into value, and really doubling down on that at a time when we know it is going to meet customers where they're at—and doing that early.
Speaker #3: And the third piece is just the fuel volatility that we've seen. So, we will continue to keep a very close eye on the costs that are coming through.
Speaker #3: And we have an SSI plan for this year, which really helps us to offset those increases that we've seen in things like wages and energy.
Speaker #5: Yeah. And Michael, it's also worth noting as well, we are a healthy margin business. We are a healthy margin business, and together with that sort of cost control, I guess it allows us to remain.
Speaker #5: Highly competitive in this market. And, yeah, as I said, meeting the customer where they're at and respecting the value. So, I think it is in that position that we give guidance today.
Speaker #4: Okay. Thank you.
Speaker #2: Thank you. The next question comes from Caleb Wheatley from Macquarie. Please go ahead.
Speaker #6: Morning, Leah and team. Apologies for being only half on the value investment piece, but I just wanted to explore how we should think about price inflation from here.
Speaker #6: I know they don't have to be the same, but there's quite a meaningful spread between you and your largest competitor on average price movement.
Speaker #6: I appreciate the comments on working together with your suppliers, but what do you hear from them in terms of their inflation or price asks? And how is any of that feeding into your thoughts on the targeted investment?
Speaker #3: Yeah. I mean, the first thing I'd say is the two measures that our two major competitors use to talk about inflation are quite different.
Speaker #3: So ours is not an average price movement measure. Ours is an inflation calculation, which is more akin to what the ABS would use. And I do note that the ABS inflation number is positive.
Speaker #3: And so that would be the first thing to note. And I think the way to look at that is actually in terms of the trajectory and the sort of the direction of channel and shifts quarter on quarter is probably your best indication of how that's traveling.
Speaker #3: In terms of the outlook for inflation, Anna, did you maybe want to cover that off?
Speaker #5: Yeah. What I'd probably do is give a bit more color around what is happening at the moment or what we've seen in the last quarter. So, as you would have seen, our inflation remained relatively steady at 1.1%, but there are a number of different variables underneath that.
Speaker #5: We saw both dairy and meat in inflation. We saw moderating deflation in produce versus the prior period. And actually, we've seen continued deflation in non-food.
Speaker #5: And that, coupled with the investment we've made, is driving some of the deflation. What I would say is that there are some big areas that have been in deflation, whether that is fruit across both grapes and berries. We've seen lots in veg, including corn, baby broccoli, and all the soft veg.
Speaker #5: And dairy is coming through from an eggs perspective, year on year. But what I would say, looking ahead, is we do think there is some inflationary pressure, but we are going to manage those very carefully. We're very conscious of where the customer is at from a value perspective at the moment, and we'll be very purposeful around how we manage that.
Speaker #5: And we're working very hard with our supplier base to mitigate inflation and to manage that cost flow coming through. So that's how we're looking at it at the moment.
Speaker #6: But based on the potential inflation coming from your suppliers, is there any implication that some of that's going to be part of this targeted reinvestment?
Speaker #3: Sorry, Michael, you broke up a little bit. Caleb, can you just repeat that question, please?
Speaker #6: Apologies. Yeah. Just asking on that potential price inflation coming through from the supplier perspective. Is there any implication that some of that's going to be a better phrase, warned by Coles to sort of manage the sort of value proposition if these price increases are coming through from a broader sense?
Speaker #5: No, as ever, we would work to find ways of thinking about the right products for investment behind, and obviously, our suppliers are working with us to make sure we mitigate that.
Speaker #5: And actually, we'll be very targeted around the right lines, and doing that in partnership with them as well. Our suppliers, as I said, are really coming to the table to support us in that, and looking for accelerated volume, doing that both in the short term and the near term. They're looking for collaborative, long-term partnerships that give acceleration.
Speaker #3: I think it's probably also worth saying that we had a real peak in cost price increase requests coming through in Q4, and that has moderated back quite substantially in Q1 and really broadened out in terms of the drivers.
Speaker #3: So, less on fuel and more on areas like wages, insurance, overheads, and the like.
Speaker #6: All right, that's helpful. Thank you.
Speaker #2: Thank you. The next question comes from Phil Kimber from E&P Capital. Please go ahead.
Speaker #7: Oh, hold on. I just wanted to—I know you called out the high profit base in the first half last year. I think you said 14%.
Speaker #7: And you're going to look at your GP margins—expanded pretty aggressively there. With the benefit of hindsight, do you feel like perhaps you got the balance between customers and shareholders slightly wrong?
Speaker #7: And is this now sort of amending that? I know it's a hard question, but I just wanted to get your thoughts on it.
Speaker #7: Thanks.
Speaker #3: Yeah, thanks for the question, Phil. I think we're comfortable that we got the balance right in FY26. We definitely were very pleased with sales growth.
Speaker #3: We grew ahead of the market, which is always our aspiration. And we were able to deliver to the bottom line some significant step changes because of the investments that we had made over time.
Speaker #3: I mean, what we're calling out today is taking early action on what we have seen over the last quite short period. It's a competitive market, where we have to be agile to make sure that we're, first of all, keeping an eye on where the customer is.
Speaker #3: And the customer has become a lot more cautious over the last couple of months. Given where we might be next week, in terms of another rate rise, we don’t expect that to go away as we head into the back of this year.
Speaker #3: And so, doing the right thing for customers in this environment is good for the long-term health of the business. And so our view is, acting early, as I said before.
Speaker #3: So that we don't get into a situation where it's embedded, it's important for us to do, as Charlie called out. We are in a healthy margin position.
Speaker #3: And we've always said that we will remain competitive in the market, and so we're taking the right action now to ensure that that's the case.
Speaker #7: Great. And are you saying that you'd sort of become uncompetitive, or is it just more at the margin and the targeted sort of categories you talked about—the high-volume lines?
Speaker #7: That's really where the focus is going to be.
Speaker #3: Yeah. I mean, as I said to Sean before, this is really about getting sales momentum going. We want to be growing above the market, and so this is about doing some targeted investments and doing a much better job of how we're doing the communication around it.
Speaker #7: Great. Thank you.
Speaker #2: Thank you. The next question is a follow-up from Tom Kierath from Baron Joey. Please go ahead.
Speaker #8: Oh, thanks. Just on the acceleration in the number of stores that you're rolling out—I noticed you did eight in the quarter. How should we think about cannibalization from those stores?
Speaker #8: Because it's been a while since you've kind of had this sort of run-rate of new space opening.
Speaker #5: Yeah, Tom, great question. As you identified, we opened eight in the quarter. We're on target to open 23 for the year, or 45 over the next two years.
Speaker #5: We do see, when we open a store, that you get some trade transfer into the new stores. We wouldn't say that's any more than we would have seen historically.
Speaker #5: That's just part of when we do open a store, so that's not an increasing trend or anything like that. But what we do see is, when those stores are established, it takes about a three-year horizon for those stores to mature from their own perspective.
Speaker #5: We're pleased with the performance of these stores that we've opened. And, yeah, we are not seeing unusual trends there from a trade transfer perspective.
Speaker #8: Okay. Thanks, Charlie.
Speaker #2: Thank you. The next question is a follow-up from Brian Raymond from JP Morgan. Please go ahead.
Speaker #8: Oh, thanks for taking the follow-up. Mine's just back on the investment in value. I just wanted to understand if there's a way to sort of quantify it.
Speaker #8: We can obviously triangulate a few things based on new cost growth and sales growth. But if there's a way to sort of give us a dollar figure or basis point figure around what your target investment is.
Speaker #8: And then, just a thought to that is: if that doesn't have the effect of accelerating sales growth, are you committing to remaining rational on broader, large-scale price investment?
Speaker #8: Because that's what the market's concerned about, that we head into a more meaningful—it's more of a challenging environment for gross margins longer term for the whole industry.
Speaker #8: So I just want to make sure that rationality is still in place, which it certainly has been over the years for Coles. Thanks.
Speaker #3: So, we won't be putting a number on the value investment. I think Charlie has already laid out the three levers that are leading to the EBIT guidance today.
Speaker #3: And so you can probably get to an assumption in there in terms of sort of ballpark how much we're thinking for the half. What I will say is that it is going to be targeted, and it's going to be across a range of mechanics.
Speaker #3: So it will be into areas like promotions. It'll be into everyday value. It'll be in flybys. And we're also going to look to supplement it with other initiatives that we can do to improve the customer offer.
Speaker #3: So, for example, putting on more online capacity as we come into Christmas. I mean, our perspective on this is we have an aspiration to grow in line with, or above, the market.
Speaker #3: We've said it many times before: we want to make sure that we're competitive. And so, we are just making a targeted set of investments here to get us to the point where we want to be.
Speaker #3: And we know that customers are going to be more cautious. So, from my perspective, this makes good sense from a customer perspective, but it also makes good sense from a long-term health of the business perspective.
Speaker #3: To lean in at this point and do it. And the three-point plan that we had around stepping up that investment in value, communicating it more strongly, focusing in on those big customer moments as we come into the back end of the year, and then really doubling down on our focus around execution and availability.
Speaker #3: We are confident that they are the right three things for us to focus on to get this to where it needs to be.
Speaker #5: Yeah. And Brian, I’ll probably step in and make sure that there are three elements again to what’s, in terms of our EBIT guidance, that changed.
Speaker #5: And the first element of that is definitely the sales flow-through. As Leah said, we target to be growing above market. It hasn't been in line with what our expectations are.
Speaker #5: You need to factor that through if you're trying to come to a number. We've given you a bit of a view on fuel costs as well, that we saw through the period.
Speaker #5: So I'd just be very cautious that, as Leah said, this is some targeted value in some select areas. And it's as much about communication of the value and the various mechanics that we're using as it is about value investment.
Speaker #8: Okay, all sounds very rational, and I'm hoping it all stays that way. Thank you.
Speaker #2: Thank you. The next question is a follow-up from Sean Cousins from UPS. Please go ahead.
Speaker #8: Great, thank you. Maybe just a question for Anna. Executions are becoming an increasing point of discussion, where Coles are making some missteps. If you could just talk a little bit about—this is around possibly having too many promotions with too little stock, and then also not having as many off-location displays, seeking to have a clean store. And this was an issue, I think, at Christmas '25.
Speaker #8: But ultimately, it sort of has weight on your performance in the impulse categories. Can you talk a little bit about how execution issues are impacting your sales growth rates?
Speaker #8: How quickly can you improve execution, and then, more importantly, how quickly will that be noticed by customers so that it can help you get back to a higher rate of sales growth, please?
Speaker #3: Yeah, of course. And I might tag-team with Matt on this as well. I think what we're feeling really pleased about is some of the structural changes we've made over a couple of years, which have certainly been driving sales.
Speaker #3: And that would be the work on online, to really working through there, the investment in renewal and stores, and the work on ranges coming through very, very strongly.
Speaker #3: And we're seeing very good execution scores there around tailoring the range simplification and the move we've already made on source-specific. We have seen the work on fresh also driving the quality metrics and performance.
Speaker #3: And actually, up until some structural kind of challenges on availability in certain categories, we've seen that trending very well, on the back of investments out of both the ADCs, and end-to-end work we've been doing both internally and with our supplier partners further upstream.
Speaker #3: There have been discussions around stock weight, and we've been working with our supplier partners to deeply understand that. What I would say is we've got more stock weight in-store now than we did a year ago.
Speaker #3: We've got fewer lines on off-locations, with greater volume coming in. And actually, we've got more off-locations in store than we did this time last year, and moving forward, all of those will be planograms.
Speaker #3: So actually, what we're finding is the focus on really making sure we've got the right stock at the right time. What we are struggling to manage is where we have big structural availability challenges in categories such as chilled desserts and yogurts.
Speaker #3: And actually, what we know is once one supplier falls over in that category, the impact on others is quite structural. And we've seen big gaps in there, which leads to some challenges.
Speaker #3: So we're doing an awful lot to step forward. But actually, we feel very optimistic about the future. And we have been, for many years, over-indexing in the space we had on impulse for off-locations.
Speaker #3: And we have seen a rise of that coming through in other parts of the market. But we continue to try and get a balanced offer for customers, and continue to put the stock weight where it needs to be.
Speaker #3: But I might hand to Matt as well, because it is a team effort in terms of how we think about stock weight and execution.
Speaker #5: Yeah, more on Sean. Anna, I think you did a good job of covering most of the content, frankly, and it shows we are very aligned on stock weight, particularly where there is strong value and high volume—not just between the commercial teams and the operational supply chain teams, but also with the supplier partners more than ever.
Speaker #5: And those fewer, bigger boulder promotions are also being driven harder in our bigger stores, where we can trade the space to a greater extent.
Speaker #5: So we're writing the details, Sean. We are working this end-to-end and seeing some good results.
Speaker #8: So, in short, you suggest that execution hasn't been that much of an issue, or it's been more of a challenge, but you're very much on top of it.
Speaker #8: I'm just curious around where we're at now in terms of sort of it looks as though there's obviously a lot going on there. Is it really just your value perception that's the problem rather than execution?
Speaker #3: I think we would say, Sean, that there have been a few availability challenges over the last few months, but a lot of those are actually market-wide structural challenges.
Speaker #3: So if you take something like yogurts, the whole market has struggled to get as much volume as they would want in that space. In terms of things like bananas and strawberries, that has been, again, a market-wide impact, which is actually related to growing conditions.
Speaker #3: Now, we have probably made some choices there on what quality we have been willing to flow into store because we know that customers getting a punnet of strawberries home and then them having not in shape to eat the next day—that's not a good customer experience.
Speaker #3: So, we have made some deliberate choices there. The other one I'd probably call out is the canned fish area, which is, again, there's that sort of protein trend—like the yogurts—where we've got suppliers struggling to keep up in terms of capacity.
Speaker #3: So, we're not saying that there haven't been a number of availability issues during the last few months, but what we're saying is I don't think that they're unique to Coles.
Speaker #8: Thank you.
Speaker #2: I was just going to say your narrative from suppliers would be similar, and we are really deeply understanding what that is and working closely on the actions required, so we feel quite confident.
Speaker #2: In the future.
Speaker #8: Fantastic. Thank you, Anna, Leah, and Matt. Thank you. The next question is a follow-up from Craig Woolford from MST Marquee. Please go ahead.
Speaker #7: Thanks. Just a follow-up on the liquor statement—I haven't spoken about that much, but wanted to understand what sort of messages are under the surface.
Speaker #7: I noticed that e-commerce sales went backwards, and there was a comment in there about RTBs doing quite well. But how would you characterize the competitive intensity in that liquor business?
Speaker #3: Well, it's still very competitive. And part of that is driven by, obviously, consumers—there are a number of factors which are leading to this category behaving more like a discretionary category at the moment.
Speaker #3: So there's definitely the health overlay. Younger generations are drinking less, and as budgets tighten, this is an area that consumers will cut back on.
Speaker #3: What we've been very pleased with is that the growth has moderated as we've moved into Q1 versus Q4. And actually, on the online, some of that is a bit hidden because as we start to execute our strategy around repositioning the network with more co-locations, pushing an integrated food and drink offer, and realigning the cost base.
Speaker #3: That second one, around the integrated food and drink offer, we are doing more through Coles Online. And actually, in Coles Online, we saw 20% growth of liquor.
Speaker #3: So that was strong, but it's just coming through a different channel than it previously did, which was the Liquorland website. So I think at the moment we're feeling like we've got a convenience portfolio that's in growth.
Speaker #3: We've got an improving trajectory on the warehouses. We're seeing good early results from the work we're doing on the integration, and we've got really strong customer metrics.
Speaker #3: So, all of those would point to us starting to get some momentum behind the repositioning. There's obviously more work to be done, particularly around the network piece, which will start to really gather some steam as we head into the back end of the year.
Speaker #5: But we are pleased with the store optimization program. That's on track. And we are also pleased with the cost control and the elements of integrating those food and liquor elements really well.
Speaker #5: So, I think the plan that we outlined in August—we're actually quite pleased, in terms of delivery against that.
Speaker #8: Okay, thank you. Thank you. The next question is a follow-up from Ben Gilbert from Jordan. Please go ahead.
Speaker #7: Thanks for the follow-up. I appreciate the sales call. Just to talk about the earnings guidance, specifically on cost—do you think you've cut costs too far?
Speaker #7: And across either at a store level or head office? And do you think there's enough, or do you need to put any cost back in around service or some of these capabilities around trying to improve in-stock, these sorts of things?
Speaker #3: Oh, good. Charlie made a comment on it, but I would reference you back to where we are on our customer satisfaction scores, which have all seen really strong improvement year-on-year.
Speaker #3: And we shared some of those numbers at the full year. That would point to customers getting a better experience in our stores, through online, and through the changes that we have been making.
Speaker #3: Of course, there's no doubt we are leveraging more technology and AI to help us impact that cost base. But we think we're getting the balance right.
Speaker #3: Do you have anything you wanted to add on that?
Speaker #5: No, look, I only—in terms of Ben—I think we also are pleased with that sort of cost leadership element. We are very mindful.
Speaker #5: Where those costs are targeted. And I would just remind you that it has been an important part of us trying to keep CODB as a percentage of sales flat year on year.
Speaker #5: We think that's an important element that gives us the flexibility and optionality to be able to do things like make targeted investments where we need to, and up the customer value proposition and the like.
Speaker #5: So look, we're pleased with the pros. We're pleased with the areas that we are targeting, and we're on track to deliver, as I think I said earlier, over $1 billion in savings over this four-year program that we have with Simplify and Save to Invest.
Speaker #8: And you touched on that earlier, Charlie, just around the IR piece. Do you think the structure of your data, in terms of just having that well-structured data, is at the level you need to be able to adopt a lot of this AI change at pace?
Speaker #8: Or do you still need to do a lot of work around that in the back end?
Speaker #3: Well, I think there isn't a company I've run into yet who would say that their data is 100% where they want it to be.
Speaker #3: I think we're all learning as we continue to move forward, particularly on the agentic AI journey of what needs to be done here. But we've actually invested quite a lot of work into improving our data.
Speaker #3: And the setup around it over time because we needed to, as part of the implementation of both the ADCs and the CSCs—these are both robotic facilities that use a lot of AI in them—which are highly dependent on.
Speaker #3: Being good data for them to be able to run. And so, there were enormous data projects that were run in parallel with their implementation.
Speaker #3: Particularly in that supply chain space, we're very well set up.
Speaker #5: And I would say one of the fundamental elements of the capability center is actually that sort of data and AI integration, and that investment in technology in positioning the business going forward.
Speaker #5: So from here as well, we are pleased. We've actually got a really good plan in place to continue to drive benefits through data.
Speaker #3: I think this is going to be an evolving space. It's not something where the work is going to stop; you're going to continue to need to improve and adapt as new capabilities emerge.
Speaker #8: All right, thank you. The next question is a follow-up from Michael Samotis from Jefferies. Please go ahead.
Speaker #2: Thanks for taking another one. I know you don't disclose detail on transactions versus items versus average selling price, etc. But if we look at what Woolworths reported earlier in the week, they had quite a nice tailwind from ASP, even though inflation is still relatively subdued.
Speaker #2: Just qualitatively, is that something you saw in your business? Or are you missing out on the trade-up and the trade-in from restaurants that seems to be driving some of that for them?
Speaker #3: Yeah, hi, Michael. We did see ASP growth in the quarter, and actually in line with where we had expected it to be. And what we're seeing—when you think about restaurant trade-down, the opportunity that gives us—that came through very much for us in Coles Finest.
Speaker #3: 13.3%, and certainly we're seeing those meal occasions. We are seeing customers trade down on certain elements during the week, but certainly we're seeing them trade up on the key moments that matter as well.
Speaker #3: So, we did see some pretty solid ASP, but we are focused on making sure we've got units in the basket, we've got strong transaction growth, and we're re-managing ASP in terms of keeping prices down for customers.
Speaker #3: If the mix changes and that drives the ASP, well, that means we're giving them the offer they want, when they want it.
Speaker #2: Yep. Got it. Thank you.
Speaker #8: Thank you. At this time, we're showing no further questions. I'll hand the conference back to Leah for any closing remarks.
Speaker #3: Thank you very much for joining us today. As we look ahead, our immediate focus is on delivering a strong offer for customers through the important Christmas and summer trading period.
Speaker #3: We know customers are thinking carefully about both time and money this Christmas, so our Christmas range has been designed with that firmly in mind.
Speaker #3: Helping customers put some special links on the table while making entertaining easier and providing great value across the shop. This year, we've got our largest own-brand Christmas range yet, with 371 exclusive Christmas food and drink products across Coles and Liquorland.
Speaker #3: This includes 158 new products, with our Coles Finest range—which Anna just spoke about—increasing by 40% as we see customers looking for those more premium products.
Speaker #3: That combination of value, quality, and convenience is particularly important this year. And our team members are working hard to make Christmas special for our customers.
Speaker #3: And I'm confident that our team's focus on providing quality, choice, and inspiration for customers will deliver improving momentum through the festive season. Thank you.
