The October quarter sales results for Coles released yesterday are far from a beautiful set of numbers. In fact, they’re more likely to bring a smile to faces at KKR than at the Australian institutions.
Sales from the continuing businesses (post Myer and with some adjustment of the Bi-Lo numbers) increased by 3.2% to $8.5b. The result is below the expectations of analysts, who were looking for more than 5%. Given the CPI increase of 4.2% (and food prices +9.9%) in the twelve months to the end of September, one could argue that sales actually fell by 1%.
Coles now very looks pale when compared with Woolworths first quarter (July to September) sales lift of 21%.
Food & Liquor sales rose 6.3%, but on a comparative store basis only grew 3.3%. Target delivered a sales increase of 4.3%, with comp store sales up 2.8%. Officeworks delivered sales growth, but comp sales were down 2.9%. Kmart comp store sales were also down, falling 2.2%. Coles Express reported a sales decline on lower fuel volumes. It was hard to find good news anywhere in the numbers.
The sales result announcement also reported progress on the implementation of strategic initiatives. While this strategy is in its very early stages, it may be unreasonable to expect any real impact on results for Q1. So in the second quarter Coles will continue to rebadge Bi-Lo stores; bring on 30,000 new trolleys, plastic crates and fluoro tubes; roll out the revised formats; lift the housebrand offer and continue retrenching head office staff. Might we then see a rise in sales? If sales don’t lift, even more savage cost cutting will be the only way to reach the $787m profit target for FY07 and $1.06b the following year.
Coles continues with its amputation program. In addition to Myer, it has divested its Kmart Garden Super Centres and the wholesale Tyremaster business. This can only be interpreted as retreats from sectors in which they could not adequately compete. These businesses join the list of CML specialty business strugglers that includes World4Kids, Let’s Eat, MyCar, Katies, Red Rooster and probably several others that I have forgotten.
Morale at Coles’s Tooronga HQ shows no sign of improvement. By December, 525 of the 2500 redundancies will be finalised. Most of the rest seem to be waiting for the tumbril to stop beside their desk.
The market didn’t quite spank CML yesterday, just a 1% slap on the wrist.