Coles boss Leah Weckert says RBA interest rate rise ‘knocked’ shopper confidence

Investors have punished Coles after the supermarket giant revealed softer-than-expected sales in the half-year that also lagged behind its bigger arch rival Woolworths.

But Coles chief executive Leah Weckert is confident of its sales momentum heading into the second half as the core supermarkets division posts a 3.7 per cent lift in the first seven weeks of the third quarter.

However, that missed expectations for 4.4 per cent growth and compared with Woolworth’s 5.8 per cent sales lift in the same period.

Coles was among the worst performer on the S&P/ASX200 on Friday, with the stock closing down 7.3 per cent to $20.56.

“We were obviously going over the top of a very interesting period of time because it’s the disruption from last year because of the (Woolworths) supply chain industrial action that happened,” Ms Weckert told The West Australian.

“We’re very pleased with the first seven weeks because that is growing ahead of market and it actually indicates that we’ve retained a portion of the customers that came to shop with us last year.

“We’re very happy with the momentum we have at the moment.”

Jarden analyst Ben Gilbert said Coles’ trading update missed expectations and came in light of Woolworths’ strong update this week.

Coles, which delivered a 2.5 per cent increase in group sales to $23.7 billion in the 27 weeks to January 4 — slightly below consensus expectations of $23.8b — has consistently been outperforming its rival.

But Woolworths on Wednesday revealed that gap was narrowing, with the Amanda Bardwell-led retailer reporting a 3.4 per cent lift in group sales to $37.1b in the half-year.

Speaking to media on Friday, Ms Weckert said while this month’s interest rate rise had knocked consumer confidence, the supermarket giant was yet to see the impacts on shopping behaviour at the tills.

Echoing similar comments from her Woolworths counterpart, Ms Weckert said cost of living continued to be a real challenge and consumers were looking for value week to week.

During the half, Ms Weckert said Coles lowered the price of hundreds of products as part of its winter and spring value campaigns and increased the number of items within its everyday value range.

It also cut the price of several key fresh produce lines to $1 and offered more than 1000 half-price specials in the lead-up to Christmas, helping drive shoppers through its doors amid a new supermarket war with Woolworths.

“Coming into Christmas, we were actually seeing sentiment improving,” Ms Weckert said.

“With the interest rate rise that we saw earlier this month, that has knocked that confidence a little bit.

“At the moment we’re really seeing it in sentiment . . . I would say at the moment we haven’t seen any noticeable differences in behaviour, but it’s only been a couple weeks post the rate rise so it’s something to keep a close eye on as we move forward.”

Coles’ half-year net profit was down 11.3 per cent to $511 million as it included significant items related to prior staff underpayment issues. Profit before the significant items jumped 12.5 per cent to $676m.

At its 865 supermarkets, sales rose 3.6 per cent to $21.4b, with earnings growing 14.6 per cent to $1.2b.

The growth in supermarkets offset weaker sales in its liquor division, which recently completed a simplification program that saw Coles’ Vintage Cellars and First Choice Liquor Market chains folded into the better-known Liquorland brand. Liquor sales declined by 3.2 per cent to $1.9b in the half.

“But what’s been really pleasing is the convenience part of that network . . . those sort of smaller shops, many of which are co-located with supermarkets, they’re actually in positive growth,” Ms Weckert said.

“It’s the large-format warehouse stores where we’re going to need to go back and do some more work.

“We will be looking at what are ranges that we can bring into those stores and definitely low-alcohol and no-alcohol are impoirtant parts of the range in there.”

In the first seven weeks of the third quarter, the sales decline in liquor moderated but was still down 2.5 per cent.

“Coles delivered a solid set of numbers this morning, but in the shadow of Woolworths’ blockbuster result earlier this week, solid wasn’t quite enough for investors, and the share price has dropped at market open,” eToro market analyst Josh Gilbert said.

The results come the same day the blockbuster hearing on whether Coles has misled customers with sham discounts is set to wrap up on Friday.

During the 10-day hearing, Coles admitted to strong-arming suppliers and threatening to strip products from shelves if they refused to meet the supermarket’s pricing demands.

The Australian Competition and Consumer Commission alleged Coles systematically jacked up prices on everyday items, before offering discounts at prices higher or equal to the original shelf life.

The famed “Down, Down” discounts on everything from biscuits to dog food tricked shoppers into thinking they were getting value for money, the ACCC claimed.

Barrister Garry Rich SC, acting for the ACCC, gave the court the example of Coles’ pricing of Nature’s Gift wet dog food.

The product sold for 10 months at $4, then was bumped up to $6 for a week before a reduced to the “Down Down” price of $4.50, the court was told.

Coles told the court underlying inflation was to blame for pushing up prices higher.

Woolworths is also facing allegations from the competition watchdog of misleading customers with its discounts, and its case will be heard in April and May.

The legal actions, launched in September 2024, came amid continued backlash from customers about higher prices for a basket of groceries.

Both Coles and Woolworths have face increased regulatory scrutiny and been forced to front multiple government inquiries into claims of profiteering.