Coles' Next Phase: From Transformation to Targeted Growth Investment
FY26 results show strong execution, but the spotlight shifts to a $1.55B CapEx step-up, AI-driven productivity, and a strategy refresh aimed at nonfood and liquor recovery.
COL.AX · Earnings Call · 2026-08-24
Record FY26: Earnings Growth Ahead of Sales
Coles Group Limited delivered a solid FY26, with group sales revenue of $45.6 billion (+2.8%) and EBIT up 9.9% (ex significant items). The standout was Supermarkets, where EBIT rose 12.2% on 5.1% revenue growth (ex-tobacco), driven by 43 basis points of margin expansion. “FY '26 was another year of strong execution, where we strengthened our competitive position and grew market share in supermarkets.” — Leah Weckert, CEO · 2026-08-24 The CFO, Charlie Elias, emphasized the quality of the result: “Earnings growth was well ahead of sales growth, reflecting the strong supermarkets performance, operating leverage and continued discipline across the cost base.” — Sharbel Elias, CFO or Group Financial Officer · 2026-08-24 Cash conversion hit 101%, and the fully franked dividend rose 13% to $0.78 per share.Digital and AI: The Next Wave
The company's digital engine is scaling profitably. Supermarkets eCommerce sales grew 26.4% to $5.6 billion, and the customer fulfillment centers (CFCs) achieved positive EBITDA in only their second year. The Coles 360 retail media business grew double digit, and the partnership with Uber Eats has expanded to offer the largest on-demand grocery range in Australia. Leah Weckert, CEO, highlighted the next frontier: “The next wave is conversational shopping and agentic commerce.” — Leah Weckert, CEO · 2026-08-24 The company is already embedding AI use cases across forecasting, ranging, and even theft detection, and sees AI as a major productivity lever. As Weckert noted, "AI is already well established across Coles and delivering value in many parts of our business." The new Capability Center with Accenture is expected to deliver over $100 million in annualized cash benefits by FY29, with $190 million in one-off costs treated as significant items. This is incremental to the Simplify and Save program, which delivered $311 million in FY26 and is on track to exceed $1 billion by FY27.Liquor: A Drag and a Turnaround Plan
Liquor remains the weak spot. Sales declined 3.3%, and EBIT fell 47.8% to $59 million, hurt by cycling prior-year supply disruption, cost-of-living pressures, and intense competition, particularly in big-box stores. The company has completed a strategic review and will close 30 stores in FY27, with a focus on co-located convenience formats. This is a continuation of the issues flagged in prior calls; in February 2026, Leah Weckert acknowledged the challenge: “We're pleased that we've completed the 222 Liquorland conversions as part of the Simply Liquorland project.” — Leah Weckert, Managing Director and Chief Executive Officer · 2026-02-27 The current plan aims to differentiate the Warehouse format and integrate loyalty and eCommerce across food and drink. It's a clear pivot to leverage the supermarket flywheel.Capital Investment: Stepping Up for Growth
The most notable change is the two-year investment step-up. Operating CapEx is guided to ~$1.55 billion for FY27, up from $1.2 billion in FY26, including $300 million for the Victorian ADC, $150 million for new stores and renewals, and investments in technology and AI. The company plans to open 45 new supermarkets and complete 150 renewals over two years, pushing net space growth above 2%. This marks a shift from the transformation phase to targeted growth investment, as Weckert described:The company also refreshed its strategy to emphasize everyday essentials beyond food, a nod to its attempted Greencross acquisition and the growth of nonfood categories like health & beauty and pet. The everyday value proposition remains central, with Exclusive to Coles growing 6.1%. The market is watching whether this higher spending pays off, but the balance sheet is strong—lease-adjusted leverage improved to 2.3x, and the company maintains investment-grade ratings. As the CFO noted, "We're really pleased with the financial performance of the CFCs. They're absolutely in line with our expectations," a sentiment echoed from prior calls. The prior focus on CFC profitability (from August 2025) has translated into positive EBITDA. The company expects first-half FY27 sales momentum to be consistent with Q4 FY26, with eCommerce penetration reaching 15.7%. Overall, Coles is entering a new phase: leveraging its transformed cost base and digital assets to fund aggressive growth in stores and technology, while fixing the liquor business. The strategy is clear, but execution risk remains. The market will be closely watching the CapEx discipline and the trajectory of nonfood and liquor over the next 12 months.With the transformation platform we've built over the past 3 years now well established, we're moving into the next phase of targeted investment.