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Coles buoyed by sales jump
MELBOURNE, Australia (Reuters) -- Coles Myer Ltd, Australia's biggest retailer, has signaled its turnaround plan is on track after it reported first-half earnings before charges jumped 28 percent. Investors, cheered by the better-than-expected result, pushed its shares nearly 9 percent higher -- the biggest jump since Coles Myer announced the appointment of respected businessman John Fletcher as chief executive in August 2001. The food, liquor, clothing and goods retailer said it would exceed hefty cost-savings targets this year and next and increase sales margins -- which gauge how much money it keeps from what it sells -- at its supermarkets, discount stores and department stores. Margins at its biggest division, food and liquor, added a hefty 19 basis points to 3.51 percent, nearing the broad Australian supermarket industry target of 4 percent, while margins at the Kmart and Target discount chains jumped sharply. "It's a stellar result," said David Spry, head of research at Melbourne-based broker F.W. Holst & Co. Coles Myer operates 670 supermarkets and 500 discount stores around Australia, as well as the Myer Grace department store chain, but has struggled to generate consistent returns under a series of chief executives. Its Myer Grace department stores, which are scrambling to return to profit, also swelled margins on the back of a better product mix at revamped stores. Net profit for the 26 weeks ended January 26 rose to A$217.9 million ($130.5 million) from A$212.5 million a year ago, including an one-off charge of A$76.5 million to align its accounting with new rules in the United States, where the group's shares are also listed. Fierce competitionThe rules tighten the already slim percentage of rebates from suppliers, and advertisers that can be carried to bottom line. Profit before charges rose 28.2 percent to A$272.4 million, beating forecasts of A$249.5 million, with a range of A$222.7 million to A$256 million, according to a Reuters survey of five analysts. Investors usually prefer Woolworths Ltd, Australia's number two retailer and biggest grocer, to Coles Myer, owing to Woolworths certainty but as Coles shares soared, the rival grocer's stock slid 1.4 percent to A$11.11. "The Coles Myer result is better than the market thought, so there's a bit of switching into Coles (from Woolworths)," said John Sevior, senior portfolio manager at fund manager Perpetual Trustees. Supermarkets run by both companies compete fiercely with each other as well as with new entrants, such as German operator Aldi and expansionist Foodland Associated Ltd, which has opened new stores along Australia's crowded eastern seaboard. Coles Myer shares added as 8.8 percent to an intraday peak of A$6.05, settling around A$6.00 in early afternoon trade, well off its six-year low of A$5.27 hit last week. The overall market limped lower. No petrol deal yetFletcher reiterated the fiscal 2003 profit outlook of A$425 million to A$435 million, up 20 to 23 percent from A$353.8 million last year, and said Coles Myer would beat cost savings goals of A$210 million this year and A$300 million next. The solid first performance meant a break-up of the retail giant, which has long been mooted as one way to unlock earnings potential, was now less likely. "The whole issue of whether or not structural change is needed in this company really rests on the view of whether or not you can actually run eight brands across the retail spectrum and deliver consistent results," Fletcher told reporters. "I think this result says that we can." Coles Myer disappointed some investors who had been expecting it to unveil a plan to buy Royal Dutch/Shell's Australian petrol stations for at least A$250 million. Fletcher said a petrol deal to rival Woolworths was close, but declined to comment further. Shell has declined comment. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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