Coles’ full year profits plummet 35.7%

Australian retailer Coles’net profits plummeted 35.7 per cent in its fiscal 2007 due to cost hikes linked to the retailer’s ownership review and a disappointing performance of its core food and liquor business.

Thanks to good performance of Coles’ other businesses, the retailer’s operating profits grew 4.2 per cent. Excluding ownership review costs, Coles Group’s underlying net profits after tax would be slightly higher: a 0.6 per cent increase to AU$792.4mn (US$666.5mn)

Coles Group already announced it would not meet its 2006 net profit level of AU$1,163.6 (US$876mn) and forecasted 2007 net profits to be AU$787mn (US$662mn), due to flagging supermarket sales. The current net profit of AU$747.8mn (US$629mn) is 5 per cent lower than the retailer’s forecast of March this year.

“When we launched our new growth strategy in July 2006, we said that after five years of compound earnings growth of 19 per cent, earnings would be flat in FY07 as the Company transitioned through its business transformation and simplification programs,” CEO John Fletcher said in a statement. “The result being announced today includes a lower contribution from supermarkets, as previously flagged, offset by the strong performance of all other businesses and additional savings identified in business simplification.”

Coles supermarket and liquor earnings before interest and tax (EBIT) fell by 9.5 per cent to AU$693.3mn (US$583mn), a decline that was offset by a good performance of Coles group’s other businesses: Coles Express, Target, Kmart and Officeworks.

Coles Group said it was "inappropriate" to give any guidance for the current year because it will not “(…) remain in its current structure under any scenario.” In November Coles’shareholders will vote on the final offer by Westfarmers, which intends to acquire Coles Group. All related documents have been given to Australia’s competition authorities for examination.