October 14, 2018 / 10:10 PM / a month ago

UPDATE 2-Promotional toys boost sales for Australia's Coles ahead of listing

* Coles posts best quarterly sales growth since Jan. 2016

* One-off promotion delivers boost

* Coles due to list on Nov. 22 (Recasts adding analyst and management quotes, shares)

By Tom Westbrook

SYDNEY, Oct 15 (Reuters) - Australia’s second-largest supermarket chain, Coles, posted its fastest quarterly sales growth in nearly three years as promotional toy offerings proved to be a big hit - a welcome filip ahead of its listing next month.

Same-store sales for Coles, which will be spun out of Wesfarmers Ltd, climbed 5.1 percent in the July-September quarter from a year earlier, more than double the previous quarter’s growth and the best since the December quarter of 2016. Total sales rose to A$9.8 billion, also up 5 percent.

“Little Shop” toys - miniature branded products like shampoo, vegemite and detergent - instantly became a hot commodity in playgrounds and even created a market on eBay, where full sets are advertised for hundreds of dollars.

Delaying the implementation of a levy on plastic shopping bags until after major rival Woolworths Group Ltd also helped sales.

“What’s happened here is that Coles has caught Woolies flat footed,” said David Walker, an analyst at Clime Asset Management, which does not own Wesfarmers shares.

“They handled the plastic bag changeover better, they had the Little Shop gimmick - but that won’t last forever,” he said, adding that its overall business strategy was not developed as Woolworths’ strategy.

Woolworths is not due to report its September-quarter sales results until Nov. 1. Its same-store sales grew 3.1 percent in April-June when Coles saw sales climb 1.8 percent.

Coles, estimated to be worth about A$16 billion, is set to begin trading on Nov. 22, subject to a shareholder vote, as Wesfarmers embarks on the largest reshuffle of its portfolio in a decade.

“Little Shop ... exceeded all of our expectations, boosting transaction numbers, basket size and units sold,” Coles Managing Director Steven Cain said on a conference call with journalists.

“Looking ahead we expect to see sales momentum return to levels more in line with the fourth quarter of the 2018 financial year,” he added, a period when the company logged growth of 1.8 percent.

Wesfarmers shares fell 0.4 percent on Monday, less than the broader market which fell 1.6 percent.

Without Coles, Wesfarmers would earn nearly 60 percent less revenue, but could generate about 50 percent more return on capital, according to research released by the company this month. ($1 = 1.4073 Australian dollars) (Reporting by Tom Westbrook in SYDNEY; Additional reporting by Nikhil Kurian Nainan and Rushil Dutta in Bengaluru; Editing by Edwina Gibbs)

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