February 6, 2020 / 1:59 AM / 12 days ago

Australia's Coles flags forecast-beating earnings though falls short of year earlier

(Reuters) - Australian supermarket chain Coles Group Ltd (COL.AX) said on Thursday a strong year-end performance likely pushed its first-half earnings beyond analyst estimates - albeit still below the year-earlier level - briefly sending its shares up nearly 2%.

Coles said same-store sales for the three months ended Jan. 5 grew 3.6% versus 0.1% in the previous quarter, taking the overall first-half figure including the New Year holiday to 2%. That compared with 3% in the first half a year earlier which ended on Dec. 31.

The forecast comes as pressure eases somewhat for Coles and larger rival Woolworths Group Ltd (WOW.AX) after German supermarket peer Kaufland last month canceled plans to expand into Australia.

“This is a positive update from COL in a competitive environment,” Macquarie said in a research note.

In a surprise business update 12 days before its scheduled results report, Coles said several one-off factors would help it report earnings before interest and tax of A$710 million to A$730 million ($478.82 million to $492.31 million) for the first half of its financial year which began in July.

Though below the A$733 million reported in the same period a year earlier, the forecast’s mid-point was 3.5% ahead of an estimate from Macquarie, while Citigroup said the range comfortably beat consensus of A$650 million to A$655 million.

After the update, Coles’ share price jumped as high as 1.9% before pulling back to just under par by midday. The benchmark index was up 0.8%.

The supermarket operator said like-for-like liquor sales growth was 1.5% for the first half, which Macquarie said beat its forecast of a 1.5% decline.

It also said profit margins in its liquor business would likely fall due to greater promotional and clearance activity.

Coles’ liquor business is set for intensifying competition from the Dan Murphy’s and BWS liquor brands of Woolworths, which plans to spin off its newly combined drinks and hospitality business.

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Shinjini Ganguli and Christopher Cushing

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