New Coles owner coming into focus

Posted by AFN Staff Writers on 20th August 2018

PREDICTIONS US supermarket giant Walmart will be the new owner of Coles are strengthened by sales figures showing the American’s comparable sales for the last quarter grew 4.5 per cent.

It’s the company’s strongest growth in more than 10 was, led by grocery, apparel and seasonal categories.

E-commerce sales grew 40 per cent, up from 33 per cent in the previous quarter, the company said in a press release. The positive results caused shares to rise more than 11 per cent in pre-market trading.

  • Net sales at Walmart International rose 4% to $29.5 billion, showing positive comparable sales in the four largest markets. Total Walmart revenue increased by 3.8% in the quarter to reach $128 billion.
Banner quarter

Moody’s Lead Retail Analyst Charlie O’Shea said it was a “banner quarter” for Walmart by most counts.

“Margins continue to reflect investments in price, people, stores and technology, though decreases were fairly well-contained, and market share continues to grow,” he said.

“The food business continues as a bright spot, with rapid rollout of in-store pickup well underway, and product delivery expanding as well.”

Grocery pickup is now available at more than 1,800 stores, and the company said it is on track to reach 40 per cent of the US population with grocery delivery by the end of the year.

There is a dramatically tempting thought Walmart’s Aussie president and CEO Greg Foran, who worked for Woolworths in Australia and New Zealand, and missed out on the CEO job there, could in some way return to settle the score using Coles.

He may though be too busy. He is responsible for the strategic direction and performance of Walmart’s 4,600 stores and more than 1 million associates. Last year Walmart US served more than 140 million customers a week and had revenues of $307 billion.

Takeover reasons

So there more sober reasons are touted for a Walmart takeover of Coles.

  • The merger of the UK Asda/Walmart grocery chain with Sainsburys freed up about $A5 billion cash
  • Australia presents as a natural market to expand into, English-speaking, can be reached via direct flights from the US, and there are a good number of successful Australian retail executives, who have current and in-depth knowledge of Coles and Woolworths, that have moved to both Walmart International and Walmart USA over the years.
  •  Walmart has been competing with Aldi in the US for a long time, so it already understands Aldi.
  •  Momentum is building in the economic cycle for US companies to buy Australian assets, especially given the difference in the dollars.
  •  With reduced US Corporation Tax rates, there is an interest from US corporations in economies that have companies with strong defensible market shares and dependable earnings that generate cash for dividends. Coles in Australia fits that criteria.

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