Earnings call transcript: Coles Group misses Q1 2025 revenue forecast

Coles Group Ltd (COL) reported Q1 2025 revenues of $10.96 billion USD, falling short of analyst forecasts by 0.6%, which led to a 4.53% pre-market stock decline. Despite the revenue miss, the company demonstrated mixed performance with strong supermarket sales growth of 4.8% and a significant 27.9% surge in e-commerce sales, though liquor sales declined by 1.1%. Coles highlighted moderating supermarket inflation at 1.2% and emphasized ongoing strategic initiatives including improved product availability, expanded e-commerce capabilities, and leveraging AI for store-specific ranging in a competitive market.

Analysis

Coles Group Ltd (COL) reported Q1 2025 revenues of $10.96 billion USD, falling short of analyst forecasts by 0.6% ($11.03 billion USD). This revenue miss led to a 4.53% pre-market stock decline, with shares dropping from $23.16 to $22.11, though the stock remains within its 52-week range. This marks a deviation from previous quarters where the company often met or exceeded expectations.

Operationally, Coles demonstrated mixed performance, with supermarket sales growing 4.8% (7% excluding tobacco) and e-commerce sales surging 27.9%. This strong e-commerce growth, supported by efficient Customer Fulfillment Centers (CFCs) and expanded same-day delivery in Melbourne, partially offset a 1.1% decline in liquor sales due to a challenging market. Supermarket inflation also moderated to 1.2% excluding tobacco, indicating easing cost pressures.

The company is actively implementing strategic initiatives, including leveraging AI for store-specific ranging across 70 categories and achieving its highest product availability since pre-COVID, driven by automation and operational improvements. Coles maintains a competitive stance in the grocery market, focusing on value, increasing everyday low-price offerings, and reporting consistent outperformance against the broader market with strong volume and transaction growth. Management expressed optimism regarding momentum heading into the festive season, despite acknowledging a competitive environment and the need to cycle past industrial action impacts.

Key Decisions for Investors

• Investors should monitor COL's ability to sustain e-commerce growth and leverage CFC efficiencies to improve overall profitability, especially given the initial revenue miss.
• Evaluate the impact of ongoing competitive pressures and consumer spending trends on future sales growth and margin expansion, particularly in the challenging liquor segment.
• Assess the effectiveness of AI-driven store-specific ranging and improved availability in driving customer loyalty and market share gains against competitors, as these initiatives are still in early stages.