Australia’s Coles sees consumers tightening wallets after first-half revenue bounce

© Reuters. FILE PHOTO: A woman walks in the fruit and vegetables section at a Coles supermarket in Sydney, Australia, February 20, 2018. REUTERS/Daniel Munoz

(Reuters) -Australian grocer Coles Group (OTC:) Ltd on Tuesday posted a 17% jump in first-half profit and forecast cost pressures would ease in the second half, but the country’s No. 2 grocer warned that shoppers may cut spending as higher interest rates bite.

The company’s earnings in the first half benefited from cost cuts and a return to normal trading conditions eliminating pandemic-related costs, which offset rises in supplier costs due to labour shortages and weather-related disruptions.

The company said it expects inflation to moderate from peak levels seen in the six months to December and as farm produce availability improves, but warned that shoppers may spend less as they face rising interest rates and energy bills.

“We are expecting that more customers will be value conscious as cost of living pressures increase, such as rising mortgage payments and energy prices,” Coles said.

It also warned that pressures associated with packaged goods, wages, and energy would result in a net increase in costs of A$10 million for the full year.

Net profit after tax for the six months ended December rose to A$643 million ($444 million) from A$549 million reported a year ago.

Cole’s cost reduction program, Smarter Selling, brought savings of about A$100 million in the first half, while COVID-19 related costs dropped to A$20 million from A$150 million a year ago.

The company’s supermarket business, which accounts for most of the group’s earnings, posted first-half sales revenue of A$18.85 billion, up from A$18.02 billion a year earlier.

“In the current quarter, Supermarkets volume growth returned to modestly positive from mid-January,” it said.

Coles raised its interim dividend by 9% to 36.0 Australian cents per share from a year ago.

Separately, Coles said it has promoted Leah Weckert to chief executive officer from May 1 to replace Steven Cain, who is retiring.

($1 = 1.4468 Australian dollars)

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