Coles Group (ASX: COL) $23.75

COL +4.9%: headline FY26 profit was a touch light, but the core supermarkets business remains in good shape, with EBIT up 12%, margins benefiting from productivity initiatives and early FY27 sales maintaining the 4Q run-rate. Liquor remains the obvious problem child, while a sizeable step-up in FY27 investment will keep some pressure on cash flow, leaving us with a result that was sound rather than spectacular.

 Key results:

• Net profit of A$1.09bn, up 1% but ~2% below A$1.11bn expected.
• Supermarket sales of A$41.47bn, up 3.7% and broadly in line with A$41.51bn expected.
• Supermarket EBIT of A$2.37bn, up 12% and slightly ahead of A$2.36bn expected.
• Supermarket comparable sales growth of 3.4%, with price inflation of 1.5%.
• Liquor EBIT of A$59m, down 48% and ~9% below A$64.6m expected.
• Liquor comparable sales fell 3.4%.
• Final dividend of 37cps, up from 32cps.
• FY27 capex is expected to rise to around A$1.55bn.

The supermarket engine is clearly carrying the load. Coles generated A$311m of Simplify and Save benefits during FY26, helping supermarket EBIT grow materially faster than sales, while eCommerce penetration continues to climb and reached 15.7% early in FY27.

Sales momentum has also held up despite some temporary disruption from a competitor’s collectibles campaign. Liquor is a very different story, with EBIT almost halving and management now restructuring the offer, store network and operating model. FY27 will also be investment-heavy, including A$190m to establish the Coles Capability Centre alongside ongoing work on the Victorian ADC.

 MM’s view: The supermarkets business is performing well, and that’s ultimately what matters most for COL, but we wouldn’t call this a knockout result. Growing supermarket EBIT 12% from just 3.7% sales growth shows the productivity program is working, and early FY27 trading is reassuring. However, Liquor needs fixing and A$1.55bn of capex means investors are being asked to fund another sizeable investment year. Coles remains a high-quality defensive business, but at the sort of multiples the supermarkets command, solid execution is already expected – we’d need either stronger top-line momentum or further margin upside to become more enthusiastic.