Coles Group Ltd FY26 result outlook: Downgrade to Neutral as lagging on sales and earnings growth

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Coles Group Ltd FY26 result outlook: Downgrade to Neutral as lagging on sales and earnings growth

PAT - 27E (A$ mn) 1,386 1,337 -3.6%

once again cycling an elevated baseline in the pcp (4.9% sales growth first 8

Half Yearly Forecasts (FYE Jun) weeks of 1Q26, vs. WOW’s 2.1%). This will likely see Coles lag WOW once

again in 1Q27E (Coles +3.9% LFL and 4.5% sales growth vs. WOW’s 4.8% Adjusted PAT (A$ mn)

2025A 2026E 2027E

LFL and 5.4% sales growth). We expect this differential to narrow from 2Q27, H1 601 676A 713

with both retailers seeing total sales growth of 4.7% - 5.0% over the next four H2 503 567 624

quarters, benefiting from a modest inflation tailwind, albeit less than our prior FY 1,104 1,243 1,337

forecasts. Style Exposure

• Margin outlook given wage cost pressure in FY27. All retailers face a step

up in minimum wage by 4.75% in FY27 and the early stages of 18-20 year olds

migrating to full minimum wage, the impact of which peaks in FY28. Despite

supermarkets having elevated EBIT leverage to wage costs, we expect Coles

to expand EBIT margins by ~10bps from 5.7% in FY26 to 5.8% in FY27. This

is a function of 1) inflation driving 4.7% sales growth, limiting operating

deleverage; 2) ability to partially mitigate through rostering; and 3) gross

margins expanding by 35bps (24bps ex tobacco and stock loss).

• Potential Greencross acquisition and Liquorland Warehouse closure. We

think Coles’ potential acquisition of Greencross (Petbarn and Greencross Vets)

from private equity at a full multiple is weighing on the multiple (Coles has

confirmed it is in talks with Greencross). While Petbarn is the market-leading

pet specialist and we believe a potential deal could be accretive, it may attract

ACCC scrutiny and create a distraction for executing on the core Supermarkets