• Coles’ supermarket sales fell for the first time in more than 50 quarters as food spending receded following last year’s pandemic surge.
• Same-store supermarket sales fell 6.4% in the three months ending March after growing 13.1% in the same quarter last year.
• Coles chief executive Steve Cain said trading appeared to be returning to more normal patterns and customers were starting to return to CBD stores and shopping centres.
• Visit Business Insider Australia’s homepage for more stories.

Coles’ supermarket sales fell for the first time in more than 50 quarters as food spending came back to earth after the surge in spending from panic buying in March last year.

Same-store supermarket sales fell 6.4 per cent in the three months ending March after growing 13.1 per cent in the same quarter last year, when panicked shoppers stuffed their trolleys with toilet paper and pantry staples as the coronavirus spread.

Coles’ sales retreated faster than consensus forecasts of around 3.8 per cent and more than the 2 per cent fall in sales across the supermarket sector, suggesting Australia’s second largest food retailer lost market share.

Coles’ same-store food sales rose 3.3 per cent in the first six weeks of the March quarter, so the negative result suggests same-store sales for the last six weeks of the quarter fell about 16 per cent, said Citigroup analyst Bryan Raymond.

However, Coles chief executive Steve Cain said trading appeared to be returning to more normal patterns and customers were starting to return to CBD stores and shopping centres rather than favouring neighbourhood stores, as they did in 2020.

Sales in April were up about 4 per cent, Mr Cain said, higher than analysts had expected.

Coles lost market share in the December-half to Woolworths and Metcash’s IGA retailers because it has fewer neighbourhood stores and more stores in metro areas and large shopping centres.

“Habits appear to be returning to normal,” Mr Cain said, adding that Coles’ market share was stabilising month by month.

“It’s the first time we’ve seen any evidence that the local shopping phenomenon, the biggest phenomenon during COVID, is beginning to unwind,” he said.

“We expect to be one of the beneficiaries of the unwinding of local and the return to more of a metro normal, which is good news for us.”

Coles shares rose 1.2 per cent to $15.81 in early trade on Wednesday.

Mr Cain also said consumers were making more shopping trips – two or three a week rather than one or two – and more transactions, supporting growth in categories such as convenience foods and food-to-go. These categories had been a big focus for Coles pre-pandemic but suffered during COVID-19 as people did more scratch cooking at home.

Chief financial officer Leah Weckert said COVID-19-related costs had also started to fall and were at the lower end of forecasts of around $10 million a month.

This should help mitigate the impact of weaker sales growth on margins. Analysts are currently forecasting full year earnings before interest and tax of $1.89 billion on sales of $38.9 billion, compared with $1.76 billion EBIT on sales of $37.4 billion in 2020.

Jarden analyst Ben Gilbert said the fall in total March quarter sales was worse than expected but trading in the four weeks of the June quarter was better than forecast.

“We would expect modest consensus downgrades post today’s update,” Mr Gilbert said. “The key question now: Is this the bottom for Coles and can it begin to close the sales growth gap?”

In a report this week, Bank of America analyst David Errington said he was not concerned by negative sales numbers following the strong growth last year.

Mr Errington had forecast Coles’ March quarter sales to fall by between 8 and 10 per cent and he expects Woolworths’ sales, which will be released on Thursday, to fall by between 5 and 7 per cent.

“We believe the key driver of future performance is the ability to generate earnings growth through cost reductions and efficiencies,” he said.

“We expect a material improvement in EBIT growth of both Coles and Woolworths in the coming 12-18 month period as COVID-19 costs are eliminated from business processes.”

Online food sales grew 49 per cent, with sales penetration increasing to 5.5 per cent in the third quarter, up from 5.3 per cent in the December quarter.

Coles’ total March quarter sales fell 5.4 per cent to $8.7 billion, with weaker supermarket sales offsetting growth in liquor and convenience stores, after growing 12.9 per cent in the year-ago period.

This story originally appeared in the Australian Financial Review. Read the original story here.

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