Coles Delivers Strong 1H26 Earnings, Beating Consensus on Key Metrics
Coles Group (ASX: COL) released its half-year results this morning for the 27 weeks ending 4 January 2026, delivering earnings that came in broadly ahead of market expectations on several key measures — though a large significant item dragged headline NPAT well below consensus.
The Numbers vs. Expectations Group sales revenue of $23.6 billion grew 2.5% year-on-year, landing close to the consensus forecast of approximately $23.8 billion. On an adjusted basis (stripping out the benefit of competitor industrial action in the prior period and excluding tobacco), the underlying growth picture was more impressive at 4.9%. The standout was operating earnings. Group EBIT excluding significant items came in at $1,231 million, up 10.2% — comfortably above the consensus range that had expected underlying EBITDA of around $2.2 billion (reported: $2,205 million, up 7.8%). NPAT excluding significant items of $676 million grew 12.5% and exceeded the top end of the consensus range of $689–$709 million that analysts had been pencilling in. On a reported basis, however, NPAT fell 11.3% to $511 million due to a $235 million pre-tax ($165 million after tax) significant item relating to the Federal Court judgment on the Fair Work Ombudsman proceedings from September 2025. The interim dividend of 41 cents per share (fully franked) was a meaningful step-up from the 37 cents paid in 1H25 and well above the consensus expectation of approximately 37 cents — a clear signal of board confidence in the earnings trajectory. Supermarkets: The Engine Room Supermarkets was the clear driver of the result. Sales revenue of $21.4 billion grew 3.6%, or 6.1% on an adjusted basis excluding tobacco and competitor industrial action effects. EBIT surged 14.6% to $1,234 million with the EBIT margin expanding 55 basis points to 5.8%. The margin improvement was fuelled by several tailwinds: the mix shift away from low-margin tobacco (37 bps benefit to gross margin), annualised benefits from the Kemps Creek Automated Distribution Centre, strategic sourcing gains, and continued growth in Coles 360 retail media income (up 10.3%). Importantly, the absence of $92 million in major project dual-running costs that burdened the prior period also provided a significant uplift. eCommerce continued its rapid growth trajectory, with sales up 27.0% and penetration hitting 13.1% (up from 10.7% in 1H25). The expansion of Customer Fulfilment Centre capabilities — including same-day delivery from both Melbourne and Sydney CFCs — and the broadened Uber Eats partnership are clear contributors. Liquor: Still Under Pressure Liquor remained the soft spot, with sales declining 3.2% to $1.9 billion and EBIT dropping 37.3% to $42 million. The segment absorbed one-off costs of $13 million related to the Simply Liquorland banner consolidation, and faced increased competitive intensity, particularly in the large-format segment. Excluding one-offs and competitor industrial action impacts, EBIT still declined 16.7% — a result that will likely keep analysts cautious on this division. On a positive note, the convenience portfolio (approximately 90% of the store fleet) delivered positive sales growth, and customer NPS improved significantly following the banner simplification. Outlook and Competitive Context The forward indicators look solid. In the first seven weeks of Q3, Supermarkets sales revenue grew 3.7% (5.3% ex-tobacco), while Liquor's decline moderated to 2.5%. The balance sheet remains robust with a lease-adjusted leverage ratio of 2.6x and investment-grade credit ratings of BBB+ (S&P) and Baa1 (Moody's). The result comes just days after rival Woolworths delivered its own first-half earnings beat, with underlying NPAT up 16.4% to $859 million and an upgrade to full-year EBIT guidance. Woolworths' strong showing — which sent its shares surging over 11% — raised the bar for Coles ahead of today's release. The key question for investors now is whether the competitive gap is narrowing. While Woolworths appears to be clawing back some ground on sales momentum, Coles' margin expansion and operational execution remain impressive. Key Takeaways The 1H26 result confirms Coles is executing well on its strategic priorities. The ADC program is now delivering real earnings benefits, eCommerce scale is building rapidly, and the cost discipline through the Simplify and Save to Invest program ($133 million in benefits this half) continues to provide operating leverage. The dividend upgrade signals management confidence, and the trading update suggests momentum is being sustained into the second half. The main risks to monitor are the ongoing ACCC court proceedings regarding "Down Down" pricing practices, the elevated competitive environment — particularly as Woolworths regains form — and the continued underperformance of the Liquor division. For investors, the underlying result is a clean beat on the metrics that matter most. The significant item clouds the headline, but stripping that out, this is a business delivering double-digit earnings growth with improving returns on capital.
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