Why Coles (ASX: COL) is plunging ~11%
Why are Coles (ASX: COL) shares plunging 11%?
The supermarket giant is being hammered following a disappointing September quarter trading update, which revealed slowing sales growth, intensifying competition from Woolworths (ASX: WOW) and mounting pressure on profit margins.
- Coles reported supermarket sales of $10.32bn, up 3.6%, while comparable-store sales rose just 2.7%, falling short of expectations and well behind Woolworths’ 6.9% food sales growth.
- Liquor sales also disappointed, slipping 1.3% to $831m.
The widening sales gap suggests Woolworths’ aggressive discounting and promotional campaigns are winning back customers, raising concerns that Coles is losing market share after a period of strong relative performance.
The bigger concern for investors is the outlook for earnings, with Coles warning that higher fuel costs and competitive pressures will weigh on profitability. Management now expects first-half supermarket EBIT to be broadly flat on last year, prompting fears of earnings downgrades as Coles faces the prospect of investing more heavily in prices to remain competitive.
With October trading reportedly showing little improvement, investors are questioning how quickly the company can regain momentum.
The sharp sell-off reflects more than a disappointing sales result; it signals a potential shift in competitive momentum back towards Woolworths. While Coles remains a high-quality defensive business, we believe the market will need evidence of improving sales growth and stabilising margins before confidence returns.
Although MM sees support ~$20 we prefer Metcash (MTS) in the supermarket space.
