Coles Q1 trading update looks better than the headline suggests, Morgans says

what happened

Morgans analysts, as reported by Market Talk, argue that Coles’ first-quarter trading update looks weaker on the surface than it really is. Guidance for flat first-half EBIT in its Supermarkets unit follows a strong 15% rise a year earlier.

Analyst Alexander Lu says Coles plans to revive momentum through targeted investment in value, clearer communication of its value proposition and a continued focus on execution. “In this context and against a backdrop of elevated fuel costs, we believe the performance remains reasonable, with Supermarkets 1H Ebit growth averaging 7% per annum over the past three years,” Morgans said.

Morgans keeps an accumulate rating on Coles but cuts its price target by 4.3% to A$24.30 a share. The stock is down 2.1% at A$21.21 today.

why it matters

For markets, the key point is the flat profit guidance after a strong prior year, which sets a lower bar for expectations. Higher fuel costs add pressure on retailers’ expenses, so margin trends remain in focus for investors.

market impact

Coles shares: flat EBIT guidance weighs on the stock, down 2.1% today

• ▼Coles shares pressure down — flat EBIT guidance for the half after strong growth a year earlier

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