Coles (COL) $22.11

COL –2.64%: Shares fell as much as 3.8%, their sharpest drop since May, as Coles posted softer quarterly numbers headlined by weaker liquor sales.

• Group Sales: $10.96bn (+3.9% YoY)
• Supermarkets $9.97bn (+4.8% YoY)
• Liquor $842mn (–1.1% YoY)
• Supermarket Comparable Sales: +4.6%
• eCommerce: Supermarkets +27.9%, Liquor +6.8%

Sales momentum into the second quarter has remained steady, but competitive intensity is rising as we head into the key Christmas trading period. We won’t be surprised to see aggressive marketing in the form of price cuts and promotions as the two major players battle it out.

Today’s share price reaction feels like an extension of yesterday’s rotation — investors moving out of Coles and back into Woolworths after a long stretch of relative underperformance. Coles continues to execute well operationally, but valuation and positioning had become stretched, leaving little room for error against a reinvigorated rival.

The numbers themselves were sound, yet the narrative has flipped: the market is now questioning whether Woolworths can recapture share and momentum through the holiday season. We continue to see both names as quality defensive holdings, but in the near term, WOW appears to have regained the upper hand.