Coles Shares Jump on Earnings Beat, Early FY27 Guide

Coles shares (ASX: COL) delivered a stronger-than-expected underlying FY26 profit and lifted dividends, showing that cost discipline, supermarket margin expansion and profitable eCommerce growth can offset modest revenue growth. The result, paired with a stable early FY27 trading update, prompted markets to reassess the stock near the upper end of its recent trading range.

The Coles share price rounded out the day at A$23.75, up 4.9% on the day following the FY26 earnings release. The move reflected a clear positive shift in market sentiment, with markets focusing on underlying profit growth, supermarket margin gains and a higher dividend rather than the one-off wage-related charge. The close also left the stock trading near the upper end of its 52-week range, underscoring the strength of the post-earnings reaction.

FY26 Results A Boost For COL Bulls

Coles reported FY26 group sales revenue of A$45.6 billion, up 2.8% year on year and broadly in line with estimates. Group EBIT excluding significant items rose 9.9% to about A$2,321 million, also largely matching consensus, while NPAT excluding significant items increased 13.7% to A$1,255 million, a 1% beat against expectations.

The underlying result was stronger than the statutory headline figure because Coles booked A$235 million in pre-tax significant items, or A$165 million after tax, tied to the September 2025 Federal Court judgment in the Fair Work Ombudsman proceedings. Statutory NPAT rose only about 1% after including those items.

The dividend message was more constructive. Total dividends rose 13.0% to 78 cents per share, compared with 78.5 cents expected, signalling management confidence in cash generation and balance-sheet strength despite the significant item.

Supermarkets were the clear engine room. Divisional sales revenue rose 3.7% to A$41.5 billion, or 5.1% excluding tobacco. Supermarkets EBIT increased 12.2%, ahead of the 11.0% consensus estimate, while gross margin improved by 37 basis points. The margin lift was helped by a mix shift away from lower-margin tobacco, benefits from Coles 360 retail media and productivity gains linked to automation and distribution centre investment.

The fourth-quarter sales detail was more mixed, with the forecast fourth-quarter supermarket sales growth of 4.2%, a slight acceleration from the 4.0% pace recorded in the third quarter. Actual fourth-quarter supermarket sales growth was 3.7%, representing a deceleration rather than the anticipated acceleration.

Liquor remained a weaker spot. Liquor sales fell about 3.3%, with earnings pressured by tougher prior-year comparisons, cost-of-living pressures and heavier promotional activity. The division’s softer performance reinforced Coles’ reliance on supermarkets, digital and automation-led productivity for earnings momentum.

What about guidance?

The trading update was a positive, with Coles pointing to supermarket sales growth across the first eight weeks of FY27 broadly consistent with the fourth-quarter FY26 pace, while eCommerce penetration rose to 15.7%. Consensus FY27 sales growth is around 3.5%, meaning the early run-rate is not signalling a slowdown from the fourth-quarter level. Holding the fourth-quarter sales pace despite an aggressive collectibles promotion from Woolworths indicates that Coles’ supermarket offer remains competitive and that customer traffic is not materially weakening.

The key positive for markets is that Coles is converting modest top-line growth into double-digit underlying profit growth. That suggests the company’s productivity program, automation investments, retail media contribution and eCommerce scaling are delivering tangible operating leverage. If those trends continue, Coles may be able to support earnings growth even if supermarket price inflation remains low.

Still, the bear case remains relevant. Sales growth is only modest, liquor continues to drag on group performance, and the fourth-quarter supermarket sales deceleration shows that revenue momentum is not uniformly strong. In addition, Coles faces ongoing wage-related and regulatory costs, while its automation and capability investment program requires sustained execution to deliver returns.

With Coles share price having double topped around A$24.38, there will be some hesitancy as the stock reapproaches the breakout zone. The market has already rewarded the profit beat and dividend increase, so further upside likely depends on Coles maintaining supermarket sales momentum, defending gross margins and showing that liquor can stabilise. If FY27 sales growth holds around or above the current 3.5% consensus and eCommerce continues to scale profitably, the earnings upgrade cycle may have further room to run. If not, the current share price may increasingly reflect a best-case execution scenario.