Earnings call transcript: Coles posts strong FY 2026 growth as shares rise 1.15% on outlook

Coles delivered FY 2026 results with group sales up 2.8% to AUD 45.6B, while earnings grew faster: EBIT +9.9% and NPAT +13.7% (ex significant items), driven by supermarkets and operating leverage. eCommerce sales rose 26.4% to AUD 5.6B (penetration 13.6%, rising to 15.7% in the first 8 weeks of FY 2027), but liquor remained weak with sales -3.3% and EBIT -47.8% amid planned closures/simplification. The company lifted the full-year dividend 13% to AUD 0.78/share and guided to FY 2027 capex of ~AUD 1.55B (including ~AUD 300M for the Victorian automated distribution centre), with inflation expected to run higher over the next 12 months; shares rose 1.15% to $22.90.

Analysis

The core read-through is not “defensive grocery,” it is that Coles is proving it can fund price investment, automation, and digital growth at the same time. That matters because the near-term margin story is increasingly self-financed: if productivity keeps offsetting inflation, rivals with weaker execution will be forced into a worse trade-off between defending share and protecting profit, especially in a market where consumers are trading down and comparing prices more aggressively.

The more interesting second-order effect is that online is no longer a drain; it is becoming a data and traffic flywheel. That raises the strategic bar for Woolworths: the winner is likely whoever can convert fulfillment density into loyalty, retail media, and substitution away from pure price competition. UBER also gets a modest read-through from deeper grocery penetration and on-demand fulfillment, but the economic exposure is incremental rather than game-changing.

The contrarian risk is that the market may be underestimating how much of the margin uplift is cyclical/regulatory and how much is repeatable. Tobacco normalization, distribution automation, and one-off cost falls have already helped; FY27 adds higher capex and management is signaling more inflation, which can flatten FCF even if EBIT keeps growing. The falsifier for any bearish view is simple: if supermarket sales ex-tobacco keep outgrowing inflation while CODB stays flat through the next 1-2 quarters, the premium multiple can persist; if not, the stock is vulnerable to multiple compression from an already-rich valuation.

Key Decisions for Investors

• COL.AX: use strength to trim rather than chase; on a 1-3 month horizon the setup is good but not cheap, and FY27 capex plus higher inflation argues for lower FCF conversion. Falsifier: sustained break above the 52-week high (~24.6) alongside another quarter of flat CODB and >5% ex-tobacco sales growth.
• Pair trade: long COL.AX / short WOW.AX for 1-3 months if you want defensive grocery exposure with better visibility on productivity and online monetization. The spread should work if Coles keeps executing on automation while the sector stays promotional; stop if Woolworths signals a sharper price response or Coles loses share.
• Buy downside protection on COL.AX via 3-6 month put spreads around the next trading update if implied vol is reasonable. Thesis: the stock is discounting too much of the FY26 margin upside as repeatable, while FY27 capex and inflation create downside asymmetry if sales momentum normalizes.
• UBER: keep on watch for any weakness rather than forcing a trade; Coles’ grocery-delivery partnership is a positive read-through for local demand density and ad/fulfillment mix, but the earnings impact is too small to be the primary driver. Best expressed only if UBER sells off on unrelated macro noise while grocery-delivery engagement remains strong.