Coles Group shares (ASX: COL) head into the final two trading sessions of June at fresh record highs of A$24.41, riding a powerful wave of defensive sector rotation that has propelled the supermarket giant 12.3% higher through June as markets seek shelter from broader economic uncertainty.
The Coles share price added 3.17% over the past week to continue building momentum, extending a remarkable monthly run that has seen consumer staples emerge as the standout sector on the Australian share market. The rally marks a striking reversal for a stock that traded near 52-week lows as recent as last month, with Coles now commanding a premium valuation as one of the market’s most sought-after defensive plays.
Momentum building in Coles shares
The rotation into staples has been driven by mounting concerns over Australia’s near-term growth trajectory. Estimates are flagging a one-in-four chance of a negative June-quarter GDP print, prompting a flight to quality among stocks offering stable earnings and predictable cash flows.
The COL share price strength also comes against a backdrop of modest but solid fundamentals. Coles’ half-year results released on 27 February showed group revenue growth in the low single digits, with supermarket revenue advancing approximately 2.5%. More importantly for markets focused on margin quality, supermarket EBIT jumped 14–15% in the period, reflecting improved product mix and operating leverage.
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price inflation in the supermarket division ran at 1.7–1.9%, driven primarily by dairy and red meat, while some non-food categories experienced easing deflation.
The liquor division, however, remains under pressure as consumers pull back on discretionary spending, limiting group-level upside. Net profit in the half fell short of more bullish expectations, contributing to earlier share price weakness before the current rally took hold.
One important catalyst for the recent rebound more specifically to Coles has been the resolution of regulatory uncertainty. On 14 May, Coles publicly addressed the Federal Court’s decision in the Australian Competition and Consumer Commission’s “illusory discounts” case, which had alleged the retailer briefly hiked prices before advertising discounts off those inflated levels in its “Down Down” promotions. The Court found that price increases in question were driven by supplier cost rises, a finding Coles argues supports the legitimacy of its discount practices within an inflationary environment.
The removal of this legal overhang has allowed markets to refocus on the company’s earnings quality rather than tail-risk litigation scenarios.
Bull Case:
- Defensive rotation and macro uncertainty driving sustained flows into stable staples
- Federal Court decision reduces tail-risk from ACCC illusory discounts litigation
- Supermarket EBIT growth of 14–15% demonstrates pricing power and operating leverage
- Scale and systems capability support compliance with new price-gouging regulations
- Valuation catch-up versus Woolworths offers momentum and arbitrage appeal
Bear Case:
- New price-gouging law from 1 July structurally caps margin expansion opportunity
- Rich valuation after sharp rally vulnerable to macro improvement or yield rises
- Persistent public anger and reputational damage risk volume loss to competitors
- ACCC blocking Kalgoorlie acquisition signals expansion and consolidation constraints
- Liquor division weakness and intensifying competition limit group-level earnings upside
What To Watch
The current rally reflects in part the defensive rotation driven by macro jitters, reduced tail-risk from the ACCC court case, and valuation support from key brokers. Markets are currently prepared to look through reputational noise and regulatory complexity in favour of stable earnings and improving supermarket margins. However, the stock’s rich valuation after a defensives-driven run leaves it vulnerable if macro fears ease, bond yields rise, or the new price-gouging regime proves more restrictive than anticipated.
With Coles’ share price breaking out above the A$24 level that had capped the 2025 rally in September, and the $23 pullback being bought, bulls will be looking at where potential resistance shapes up during this period of price discovery. With no historical markets above, we could expect to see some friction at the round number of A$25, yet if momentum and volume are with the bulls, this will be one to keep an eye on.
