Sales increased by 5.9 per cent to $40.5 billion, but the result missed market expectations, with analysts homing in on falling profit margins and the damage from rising retail crime.
The retailer revealed that total stock loss, which includes theft and product markdowns, was up by 20 per cent compared to last year due to rising levels of crime across the business.
Weckert said the theft explosion was an industry-wide issue, with retailers in the UK and US also raising concerns over retail crime as the cost of living crunch intensified across the globe.
“What is driving it? It has correlated quite closely with an increase in the cost of living pressures – I do think that is something that is at play here,” she said.
“But we have also seen an increase in the organised crime side of stock loss as well, which is more coordinated and tends to focus on products in non-food areas, affecting large amounts [of stock] at the one time.”
Coles’ management told analysts on a call on Tuesday that the company was investing in a variety of methods to combat this, including having more security guards, rolling out smart gates that stop consumers from exiting a store without paying, and implementing trolley locks, which prevent shoppers from filling a trolley and then leaving the store.
The supermarket giant had better news to share on food inflation, which it said moderated to 5.8 per cent in the last quarter of the year. Several key fresh produce goods, like broccoli and capsicums, are falling in price, while red meat was also becoming more affordable.
The performance and profits of Coles and its ASX-rival Woolworths are in the spotlight this week given predictions the non-discretionary grocery sector would shine during a volatile earnings season for the retail sector.
Weckert said that despite the persistent focus on the two major supermarkets, she believes there is robust competition in Australia’s grocery sector right now as independent brands and small businesses jostle with the majors to provide value to increasingly savvy consumers.
“I think we have a very vibrant grocery retail industry in Australia, if you compare us to many highly developed markets overseas, we actually have far more small independents,” she said.
“It’s not just the two majors, you’ve also got Aldi, you’ve got your independents with your Foodlands and IGAs across the country…there is quite a bit of competition in there.”
These brands are all competing for the attention of Australian households, which are tightening their belts. Coles found that young families and shoppers 34 and under were changing their shopping habits the most, often cutting back on restaurant and fast food dining.
“Eating out, takeaway and coffees from the café are increasingly being seen as treats,” said Weckert.
MST Marquee analyst Craig Woolford said Coles showed strong sales trends in the June quarter, but rising stock losses have likely contributed to falling gross margins in the second half of 2023.
“This may account for more than half of the weakness, with increased discounting possibly the remainder,” he said.
Coles investors will receive a fully-franked final dividend of 30 cents a share, bringing the full-year payout to 66 cents per share, a 4.7 per cent increase on last year.
