Coles Group (COL) – Road ahead clears

Coles Group is Australia’s second-largest supermarket chain operating through eponymous supermarkets and bottle shop brands such as Liquorland, Vintage Cellars and First Choice, although the company is in the process of restructuring its liquor business under the Liquorland name. Coles Group Limited was founded in 1914 and is based in Hawthorn East in Melbourne.

Coles reported FY25 earnings and final dividend largely in line with Ord Minnett and market expectations, buoyed by lower-than expected implementation costs at its automated fulfilment and distribution centres. Looking ahead, the second-largest supermarket chain said a strong finish to FY25 – sales growth in the June quarter was 4.3% – had extended into the first quarter of FY26, with sales growth accelerating to 4.9% in the first eight weeks of the period despite the impact of reduced tobacco sales due to the proliferation of illegal tobacco.

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We expect further gains to come from the automation initiatives when their implementation is complete, but on the downside, restructuring expenses and weak trading in its liquor division will weigh on group earnings. Coles has been through a period of investment and rebuilding that is now paying off and appears to have fended off the intrusion of non-traditional retailers, such as Bunnings, Amazon and Chemist Warehouse, into some of its market segments. It is also outperforming arch-rival Woolworths comfortably. We have a positive view on Coles’ prospects and maintain our Accumulate recommendation.