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Coles Group Ltd (ASX: COL) $22.95

UPDATED 22/09/2026 09:09

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Coles’ headline FY26 result came in a touch light relative to expectations, covered here. The core supermarkets business is performing well, with EBIT up 12% on just 3.7% sales growth, highlighting the benefits of its productivity program, while early FY27 trading is encouraging. However, Liquor is still needing improvement and with ~$1.5bn of capex ahead, solid execution is already reflected in the valuation, and we would need stronger sales growth or further margin upside to become more enthusiastic. The key differences versus Woolworths is Coles’ greater exposure to its structurally challenged Liquor division and uncertainty around its next avenue of growth.

Liquor continues to struggle against declining alcohol consumption and increased competition, while the abandoned $3.9bn Greencross acquisition highlighted management’s desire to diversify beyond supermarkets but ultimately left its medium-term growth strategy unresolved.

Coles also faces a sizeable FY27 capex program, while regulatory scrutiny has already constrained expansion, including the ACCC blocking a proposed supermarket acquisition in WA. In contrast, Woolworths’ challenges are more heavily centred on margin pressure, BIG W, New Zealand and its relatively demanding valuation; for Coles, the concern is increasingly whether strong execution in supermarkets can offset weakness elsewhere and deliver enough growth to justify its own premium valuation.

Importantly, the main question for COL is where the next leg of growth comes from. Coles abandoned its proposed Greencross acquisition following investor pushback, while organic supermarket growth is becoming harder to generate and FY27 includes another big spending program. With JPMorgan and UBS both downgrading the stock in recent months, solid execution from supermarkets is increasingly necessary simply to support the valuation, rather than providing a catalyst for further re-rating.