Coles Group Limited (COL) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to the Coles Group Q3 sales results briefing. [Operator Instructions] I would now like to hand the conference over to Ms. Leah Weckert, Coles CEO. Please go ahead.

Thank you, and good morning, everyone. Welcome to Coles' third quarter sales results for the 2024 financial year. Before I begin, I'd like to acknowledge the traditional custodians of this land on which we meet today, the Wurundjeri peoples of the Kulin Nation. We acknowledge their strength and resilience, and pay our respects to their Elders past and present. I'm joined today by Charlie Elias, our CFO; Matt Swindells, our Chief Operations and Sustainability Officer; Ben Hassing, our Chief Digital Officer; and Michael Courtney, Chief Executive of Liquor; Anna Croft and Amanda McVay, our Chief Commercial Officer and Chief Customer Officer, are also with us today for their first results call. Before I open up to Q&A, I would like to make some comments on the third quarter results. Momentum from the first half continued with group sales revenue growth from continuing operations of 6.4% to just over $10 billion and gross retail sales growth of 6.3% to $10.3 billion. In supermarkets, sales increased by 5.1% with gross retail sales growth of 5% and comp sales growth of 4.2%. We delivered positive volume growth, driven by our summer value campaign, this Pokemon collectible program and well-executed trade events, including back-to-school and Valentine's Day. As foreshadowed at the half year, liquor sales continued to show signs of the discretionary nature of liquor in the current economic environment with sales revenue declining by 1.9%. In Liquor, we also continue to transition the business away from less profitable bulk sales and adjusted our promotional mix across e-commerce channels. Providing value for customers remained a priority during the quarter, and the investments we made in value continue to resonate with customers. This was seen through exclusive to Coles revenue growth of 8.8%, a very positive customer response to our summer value campaign. And through our loyalty program, we saw Flybuys active membership growth of 6.8%, and triple-digit growth in customer point redemptions as we made it easier for customers to redeem points, including through the continued rollout of instant $10 off at checkout for Flybuys members. E-commerce sales continued to grow strongly with 34.9% and 4.1% growth in supermarkets and liquor, respectively. And we are seeing customers increasingly engage through our digital platforms before they shop even if they plan to shop in-store. Pleasingly for customers, availability continued to improve. Looking ahead, in the early part of the fourth quarter, supermarkets volumes have remained positive, underpinned by our value campaigns and strong execution of trade plans. We have also continued to see deflation in fresh produce and meat and moderation in inflation across our broader package categories, which is pleasing for customers given the current macroeconomic environment. We have made good progress in addressing loss, which will continue into the fourth quarter and the impact of initiatives on the loss rate is in line with expectations. In Liquor, discretionary spending is expected to remain subdued. And in the early part of the fourth quarter, sales performance has been broadly in line with the third quarter. Depreciation and amortization is now expected to be approximately $1.6 billion on a 52-week basis. And as a reminder, FY '24 is a 53-week year, and we have included some comments in the appendix of the release to assist with understanding the impact of this. Finally, our transformation programs are also progressing well towards completion. The Kemps Creek Automated Distribution Center has successfully received inbound deliveries. And the 2 customer fulfillment centers are on track to commence incremental ramp-up in line with the time line previously communicated. And with that, I'll now hand back to the operator for Q&A.

[Operator Instructions] Your first question comes from David Errington with Bank of America.

Leah, I'm trying to understand a little bit more the quarterly sales in supermarkets. Clearly, a really good performance, 5.1%. I think you're doing 4.9% after 8 weeks. So you've actually improved in that back half of the 4 weeks. Can you break it up into the buckets? It looks like there's 3 buckets. There's your collectibles. There's your availability, improvement, and there's you called out good execution going into big trade events. Can you bring it to life a little bit more, please? Can you actually say, okay, collectibles, how much contribution was it in this quarter? Then availability, can you bring to life what you did differently this quarter compared to last quarter -- or last year? I know last year you had the Scotts deal, [ that sale over ] or the Scotts went into liquidation. But can you bring to life how availability really improved this quarter relative to last quarter, a little bit of numbers around it? And good execution going into big trade events. Can you bring to life for us what you're doing differently now compared to what you were doing before that is giving you this better performance. So I'm trying to get into how much of this is execution versus just cycling a soft quarter? If you could give us a bit more into that, that would be really approved because it's a terrific quarter. And I just want to know how much is better from your execution, what you're doing, if you could bring to life what that is. That would be really appreciated.

Thanks, David. Appreciate the question. If I may, I'm going to take the question, I'm going to build on it a little bit. I want to talk about what I think the big drivers in Q3 have been. And then I'm going to actually talk about how I think that translates in into what we see in Q4, if that's okay. So you're absolutely right. Pokemon collectibles was a good performer for us in the quarter. And so the important thing, I think, to note with that is that when we look back to Q3 last year, we did not have the collectible program. And this year, we have. If you compare that to our major competitor, it's the reverse. And so we definitely have had a tailwind from that program, which did perform well for us. So it resonated really well with customers, and we certainly had a lot of superfans who absolutely loved it. So that has given us volume and sales benefit this quarter. We would not expect to see that then in terms of that magnitude of impact continue on into Q4 because in Q4, we had the KitchenAid Ovenware that we are running as the collectible, and that is cycling over the top of the mastership cookware that we had last year. Now we are definitely planning for that to cycle effectively. But obviously, the differential of cycling over the top of nothing is there in terms of Q3 to Q4. If I talk about availability, so that's the second one you raised, and I agree, that has been a really important aspect of driving sales into Q3. Last year, in Q3, we were in a position where our availability, particularly on a number of our KVI line [ was poor ]. And this year, we have done a much better job, driving availability and having a really strong exit out of Christmas so that we have sort of a really cracking start right from the beginning of January. To give some numbers for you to sort of quantify it. Our delivered in full rate for Q3 this year was at 96% of the pre-COVID numbers. So you know we talk about those indexes. If I compare that to where we were in Q3 last year, so FY '23, that number was 89%. So we've gone from 89% on the index to 96%. If I look at DIFOT, which is Delivered In Full, On Time, which is the other measure we may use, last year, we were at 81% on the index. This year, we were at 91% on the index. So a very substantial step change in terms of the availability metrics. As we move into Q4, it is our expectation that we will continue to see some benefit from improved availability versus last year, but they will not be at the same magnitude that we saw in Q3 because Q3 last year was very poor for things like chicken and water and the like. So that's the second asset. The third asset you raised is execution. I'm going to just reword that a bit. We have had a very positive response in the quarter to the activity that we have done on both our value campaigns, so in particular, the summer downtown that were run, but also the trade activity. And what I would describe as good execution on the trade activity is that we get a strong exit out of our events. So we come out of them with good availability. We don't drop availability on the way out. We've got good stock weight as we go into the event, and we've got value on the right lines. And I think we have done a good job at executing on those 3 things for things like back-to-school, Australia Day, Valentine's Day and in the lead up to Easter in terms of that trade plan that we've run through the quarter. And we have, in April, just launched our new Autumn downtown program, which is performing well for us, and we are continuing to maintain focus on good trade execution in the store. So that piece, we would expect to transition successfully into Q4. A couple of other things to call out, which were not on your list. I do think that Q3 did benefit from Easter being earlier. So if you think about the entertaining and the family gathering that happens in the lead up to Easter, they came earlier in the year this year than they did last year. And so we saw more of that benefit fall into Q3. Obviously, we won't see a repeat of that into Q4. And then the other area I would call out is I do think that year-on-year, we are doing a much better job in terms of our digital engagement with the customer to improve the customer experience. So a lot of the features that we now have on the app and the website to do things like use in-store mode to make your shopping list to be able to filter by the best unit price and the like, all of that is improving the customer experience. And obviously, that impact that we've seen in Q3, which is substantially better than what we had in Q3 last year, that will continue into Q4. So I do think there is some pieces which is cycling, which is the collectibles and the availability. But I think there are some pieces here, which are -- genuinely, we are improving our performance sustainably as well.

And you think that there's more improvement to come in that, Leah? I mean, clearly, you're on a great momentum, but there's more to come, but you've got a few cycling bits and pieces. But overall, the momentum of the improvement in the underlying performance, it seems like you're pretty happy with the way it's headed.

I think we would say that we've got good momentum. We are cautious as we go over the top of Q4 about having a stronger performance period to cycle is what I would say. But we have positive volumes at the moment, and we intend to keep them that way.

Your next question comes from Tom Kierath with Barrenjoey.

Just a quick one on the D&A change, the, I think $1.65 billion to $1.6 billion that you're guiding. You got $50 million, which is about 5% of the earnings in the second half. Can you just elaborate on what's changed there in your phasing or your CapEx plans, please?

I'll take that. Look, the D&A is very much dependent on the timing of when capital programs and projects plan. We do have a large capital program. So you need to look at it in light of the capital program as well of $1.4 billion. And I think we did talk about this year that we did have to recut the capital program a little bit to accommodate some of the investments in the loss technology that we undertook and rolled out. So really, that change of the phasing and particularly in the second half. So it really is just a phasing change. So we are guiding to, as we look at the numbers, the depreciation is likely around -- land around $1.6 billion compared to what we had previously guided a $1.65 billion. And just to be clear, for that to be on an equal and comparable basis, they are both on a 52-week basis.

Charlie, the CapEx isn't changing. So does that mean that CapEx -- the capital -- the projects that you're spending on are being depreciated over a longer period? I'm just trying to understand why...

So yes, the nature of the capital programs are slightly dealt with -- were different, but also just the timing of what those differences land and when they do land, that changes as well. So there is a phasing element, if you like, with those programs. So it is both. Even though the overall program didn't change in dollar amounts, the programs within it did change, and the timing within that did change, and that they lead to different depreciation outcomes.

Your next question comes from Michael Simotas with Jefferies.

Can I just follow on from [ Kierath's ] question on sales and well done on a strong sales number during the quarter. A little bit of evidence that Coles pricing became a little bit more aggressive in the quarter. And Leah, you touched on the downtown campaigns. But as your relative pricing compared to either the discounters or your major competitor changed during the quarter. And do you think that's been a driver of the strong sales performance?

Well, value, as we've said the last 2 release calls, has been a huge priority for us. And we are taking our need to be competitive in the market at the moment very seriously because we definitely are seeing customers cross shopping more and researching more online to then facilitate that cross shopping. So we're very conscious that we need to be price competitive across a wide range of competitors. So not just the supermarkets, but other players as well. I wouldn't call out a significant change has occurred versus our supermarket competitors in terms of our price indices. So I think I would probably say that the statement you've made is maybe a little bit overstated. But it's something that we obviously are monitoring very closely and responding to as we need to.

And if I could just ask quickly on tobacco as well. So it looks like the tobacco drag might have increased a little bit even though the contribution is getting smaller. Is the rate of decline in tobacco accelerating? And does that impact on customers that buy other products as well? Or does it just affect the tobacco sales itself?

I might ask Anna to take this one for us.

Yes. Look, we have seen that tobacco continues to be in that drag. We have experienced a bit of acceleration -- a slight acceleration in the decline across the quarter. We see no broader impact in terms of halo impact on the supermarket business. And obviously, what we're seeing is the overall market experiencing challenges. I think we're seeing the cost of living pressures really eating in tobacco categories, and customers are having to prioritize spend. We've seen significant channel shifts with the growing illicit tobacco trade, and the move to vaping has really had an impact on the category, too. We forecast this trend will continue to the short term. But what we will do is when we come back to do the full year results, we'll quantify it in more detail for you. So yes, you are right in terms of it has been a slight acceleration quarter-on-quarter.

Next question comes from Ross Curran with Macquarie.

Actually, I want to just ask around the liquor business, which was a bit challenged in the period. Are you able to help us break out the impact of the wholesale softness there versus what you're seeing across your retail customers?

Ross, Michael here. Thanks for the question. Happy to help you understand the sales a bit further. So the first thing I would mention is, as we called out in the release, there are some adjustments for timing of events in the third quarter. The reason why I called that out is because when we gave the 8-week update, we said adjusting for timing, we were minus 1.5 for the quarter to date. And then with that same adjustment at the end of the quarter, we were minus 1.4. So whilst performance is down relative to the second quarter, it's been fairly stable across the quarter. What I would then call out is, as you say, there are certain choices that we're making within sales not to cycle some unprofitable activity. And again, when we spoke at the half year results for the 8 weeks to date, I said that if you excluded those 2 factors, then we were marginally positive in terms of headline growth, and that remains the case now. So again, fairly stable that we're marginally positive excluding for those 2 factors. And so whilst that's a bit of a headwind to the headline sales growth in the short term, we think it's right thing for the long term of the business. I think even adjusting to those, what that leaves us with is the challenge of fixed cost deleverage throughout the second half because even when you adjust for those factors and saying that we're marginally positive, it's obviously going to be below the level of cost growth that we're seeing. And for our business, we're predominantly a small-format network. And so what that means is, is that circa 90% of our stores are a small format offer. That means the majority of time that we're working -- that we're open, we've got 1 team member working in store. So when we are seeing a slowdown in sales, which we believe to be a market slowdown in sales based on the fact that we've slightly grown our market share on an [ xbox ] basis throughout the third quarter. When we're seeing that slowdown, we do have limited ability to flex the costs within store. And so with sales being where they're at the moment and as we called out in the release, those trends are continuing into the fourth quarter. That's going to present a challenge for profit throughout the second half.

Next question comes from Shaun Cousins with UBS.

Just a question regarding cash flow and the cash conversion commentary around the extra week, meaning that cash conversion will be below prior years. Could you maybe sort of give us some shape to that in terms of, is it a 90 to 100? Is it 80? Or maybe sort of provide some shape? And how much of it is the extra week versus how much of it is a willingness on the part of Coles now to actually buy more inventory? We're getting more trade feedback that you're more ambitious about generating sales and having the stock to do that. And I think, Leah, your opening comments highlighted that might have been an answer to a question that you've come out of promotions with better stock levels. That's pleasing, but it's somewhat inconsistent with how you previously executed promotions. So I'm just curious if some of this sort of sluggishness in the cash conversion for fiscal '24 a function of a willingness to take on more inventory to generate the good sales release that you've had, please?

Sure, I'll take that one, and thanks for the question. Look, in terms of the 53rd week, so really simply, firstly, let me just address that very last point. I'm really comfortable with where the sales inventory levels are. And you'll see that when -- obviously, we look when I look at the results. I look at inventory working days, days inventory, et cetera, all those seems to be very tightly managed. So from my perspective, there isn't an inventory element to the cash flow conversion. It's purely the 53rd week and the timing of that 53rd week. And where you led off, it is in that 90 to 100 range. It isn't in 80 or anything less like that. And the best guide I can give you, Shaun, is if you go back to sort of 2019, I think it was the last time we had the 53rd week, it was pretty much in that sort of 90 to 100 range.

Fantastic. And my second question is just around private label or exclusive brands growing very strongly. Can you talk a bit about how much of that growth is coming from entry level in terms of the growth rate? I know you're adding more SKUs there. And the premium level in that there's probably been trade feedback that you've been over-indexed in entry-level private label, which has sort of impeded the growth that you've got in categories. But that's changing now, and you're adding more premium private label products as well, and that seems to be a factor that's supporting your growth rate there. So could you maybe break up that very strong exclusive label growth you're getting, please?

It's a great question, Shaun, because it's a really interesting answer, which is when we look at the contribution that we get from the 3 tiers, so we've got the good tier, the better tier, which is your mid-tier, and your best tier, what we've seen over the last couple of quarters is our contribution coming from the good tiers, is that value entry tier, is actually going down, and we're seeing increased levels of contribution coming from the better and the best tier. Now some of this we do put down to the fact that we have been expanding the finest range, so the best tier, and that is resonating really well with customers. So in the quarter, we did see a 22% growth in finest, so well above the growth rate for Own Brand overall. But we also believe some of it is as customers are cutting down on eating out at restaurants and moving to buy food to try and replicate that experience that at home, the products that they are going forward to be at a data or in the better and the best tier than the value tier. So it is a new customer and a customer that's coming in from all affluence levels that is moving into Own Brand at the moment.

Next question comes from Lisa Deng with Goldman Sachs.

Leah and Charlie, just a first question on e-commerce that was very, very strong. Can we talk a little bit about the key strategies that we deployed there to drive that strength, please? I think, Leah, you talked earlier to added functionality. But is there anything in terms of pricing, the extra -- sorry, the instant $10 off, expanded delivery points, et cetera? Can you please step us through the key strategies there?

I'll pass it to Ben to answer for us.

Thank you, Lisa. Good to hear from you. So yes, the results were good. I think we do need to put them in context. So if we think about a year ago at this quarter, we're just completing the migration of 2 front ends -- of customers from 2 front ends to a single front end. So the growth numbers were a bit soft. But our strategy continues, and I know we're going to have some time later to talk about our broader strategy across digital. We're looking to serve all 3 core grocery missions. So the weekly stock up, which really has strong growth, whether it's through delivery or click and collect. And certainly, once we add the Ocado CFC, that's going to be significantly enhanced. We have a nationwide network that is offering the weekly fill-in stock up through same-day delivery. And then we've also been -- probably a bigger part of the growth has been around immediacy, whether we sell on a partner's platform, Uber or DoorDash, or whether we offer that service directly through our own platform in Rapid. There's differences in each, but we're seeing customers that take up more than one of those key shopping missions. When they do multiple, they actually spend more in total than if they were just shopping with us on one. So there's been a lot of feature enhancements as well. I mean we look at the e-commerce growth numbers. But actually, if you put those in a broader context, as Leah mentioned, we're seeing more and more just using digital in the way they engage with Coles, whether it's before they shop with us, more and more while they shop with us, and certainly after they shop with us. So more to come during our Strategy Day.

Got it. And a follow-up is to Retail Media -- sorry, Coles 360. That grew very strongly and saw 30%. Can we talk a little bit about who our key advertisers are? How they're thinking about the value add we provide? And is it an expanding industry/pie? Or is it more of a competitive market share wins?

So I'll invite Amanda to answer on this one and then -- so I'll hand over to her.

Thank you for the question. So regarding Retail Media and Coles 360 team. So it is a fast-growing part of the industry. And when you mentioned -- when you ask the advertisers, so for us, it is partnering with our top FMCG brands and really seeing the value that Coles 360 can unlock with a variety of tactics and a variety of our understanding of our customers. So we are optimistic of the growth.

And I think just building on that -- just building on that, we have seen good growth across the year in all of the different channels that we have as part of that. So the website and the app, the digital screens, the personalized offers that suppliers can take part in, and also our traditional channels, which are like the magazine and things like that. If we were to call out kind of where are the areas where you see the sort of the bulk of the spend coming from, it really is in the nonfood and grocery spaces, which are the largest contributors there.

And it's incremental to, I guess, our traditional sort of sales like the budget that the sales guys from the brands would be giving us as opposed to cannibalistic.

Yes. The intention is yes, yes, it is. Yes, it will be incremental, particularly as we continue to layer on more and more different types of offers that they're able to buy into.

Next question comes from Richard Barwick with CLSA.

Leah, I just want to talk about inflation. I know you've referenced that you're seeing continued deflation in produce and meat and a moderation across packaged grocery. But can you just sort of expand on that a little more and perhaps just talk about your expectations a bit more detail around time frame. So this -- for instance, your deflation in produce and meat, from what you can see now, is that something that you'd expect to be in place really for the duration of the quarter? And then if you talk about the packaged groceries, just, again, a little bit of background in terms of what your expectations there and what you're seeing coming through from the supplier base.

Thanks, Richard. I'll ask Anna to talk about what we saw in Q3, and then I'll make some comments on the outlook.

Richard, so we have seen total inflation moderate in the quarter down to 2.2%. And tobacco does have an impact on that. So inflation, excluding tobacco, moderated to 1.9%. So we've seen about an 80 basis point step off quarter-on-quarter, which is actually broadly in line with the APS data for food and alcoholic beverages, which is about 70 basis points decline quarter-on-quarter. We are seeing moderation in package coming through. And overall, in fresh, we are seeing flat inflation. Now where we are seeing both meat and produce continue to be in deflation, offset by bakery, which is in high single digits, although we're seeing that starting to moderate kind of quarter-on-quarter that is flat. We're seeing deflation in produce, particularly coming from fruit, apples and avocados, and then meat [ retains ] predominantly in red meat and deflation. Packaged, we did moderate in the quarter, but that's mainly due to cycling CPIs from the prior year. So that gives you a bit of context on what we saw in the quarter, but I might hand over to you, Leah, to do what are we thinking in terms of the outlook.

Yes. So I think on the outlook, our expectation, and I'm going to talk just sort of short term here, which is let's talk over the next couple of quarters because I think calling anything further out at the moment is a bit difficult. But our expectation would be that we'll continue to see moderation in the package categories. As we go over the top of those significant CPIs that we came through last year, I would say that we're increasingly having conversations with proprietary suppliers at the moment around volume and stimulating volume growth, which is leading to more conversations around promotional activity, and we're just keeping a strong eye on that at the moment. The other thing I'd say in areas like Health & Home, it is very competitive in the market between all the different players that are playing in that space at the moment. And I think that, that is definitely leading most players to be very sharp on pricing in that particular phase. I think on the sort of the other side, I think if you look at fresh produce deflation, if you go back sort of -- if I talk July, and I go back 2 years ago, we had those big floods through the southern part of Queensland. That drives an enormous amount of supply constraints, particularly in things like lettuces and cucumbers and zucchinis and the like. You then go through until July at the beginning of this fiscal year. And so you saw fresh produce in deflation as it went over the top of that. That fresh produce deflation, and as we've gone through the last 3 quarters, has eased quite substantially. So Q1 to Q2 at ease, Q2 to Q3 is eased. And as Anna mentioned, it's now really the deflation we saw in Q3 is really driven by fruit. So vegetables really have started to sort of more normalize into a low inflationary position. And I think as we think about then going into July in a few months' time, short of another weather event, and I know none of it can promise that, that's not going to happen. But short of that, I would expect to start to see fresh produce coming into what I would probably feel is a more normalized inflationary position across both the vegetables and fruit. So I think that's sort of the counterbalance. But I think all in all, what that means is we'll continue to see some moderation in inflation overall. But I don't think in the sort of short term, we're moving into an overall deflationary position.

Right. So even -- so when you -- that comment, Leah, just to be clear, if you sort of -- you're thinking at least a couple of quarters in advance, you don't think you'll be into deflation, but obviously lower inflation.

No promises, but that would be my best estimate right now.

Your next question comes from Bryan Raymond of JPMorgan.

My question is first one just following up on that one, and I think Michael's question earlier around promotional intensity. Perhaps this is somewhat around phasing because we're sort of hearing from suppliers that we are getting a bit more promotional feedback in terms of -- particularly with Coles as you are looking for volume, which is fantastic. But just trying to get a feel for that the -- piecing together your commentary earlier just around having discussions with branded suppliers around volume and the need for promotions compared to your earlier response to Michael around. You're not seeing any real move in your price indices. Is this just a timing thing? Or should we expect you guys to be getting a bit more competitive going forward and it's just not yet in the numbers? Is that like a live discussion? Or is this something that's part of your BAU discussions, and we shouldn't be making too much of it? It would be good to just get some broader context around those 2 comments, please.

Yes. I think if I go in those 2 pieces that you mentioned together, my comments definitely were around Q3. And a lot of the conversations that are happening now would be things that we would see in the future. Obviously, I can only comment on what's happening in our business, but I would assume also that if suppliers are looking for volume with us, potentially, that is a consistent conversation that's happening across the broader market as well. But it's something we are very focused on. We want to continue to have good volume growth. And I know we don't show you the volume numbers, but if you have a look at the sales for supermarkets ex-tobacco at 6.6%, and then you have a look at the inflation of supers ex-tobacco at 1.9%, the differential between the 2 of those is volume and mix. And the biggest proportion of that is volume. So we did see good volume growth in the quarter. And we're certainly very conscious that as the cost of doing business continues to be tough, we have to keep keeping that volume rate up. So we are certainly investigating all options we have available to us to drive that.

Great. And just the other part of that is reverse CPIs or essentially suppliers reducing prices where there's been a reduction in costs. Is that in a similar boat that we are -- that's more a live discussion than something that's in the baseline? I'm hearing that is a live discussion at the moment in terms of getting some of that reduction back on the shelf prices. Is that -- are you seeing much traction with that yet?

So again, I go back to value is absolutely key to us right now. And I think customers definitely have an expectation that as we see commodity movement shift back versus where they were over the couple of years, that -- those types of shifts will be passed through to the retail price. So we've -- I think it's been publicly reported. We have been actively engaging with our suppliers to have those types of conversations. I would say there's not much of that in the base right now.

Excellent. And just a final clarification, if I can, just on Flybuys. You talked about a triple-digit growth in redemption rates. I know there's been a change there with how people redeem. I certainly must have a big bank of 0.6. So getting $10 off each time, I scan my card, which is great. I wonder if I'm sort of an outlier or if you are seeing sort of some impact in your sales from that shift and the ability for people to redeem more frequently than they normally would because of the backlog of points that they might have accumulated but not redeemed prior to the change. Is it possible just to sort of unpick what sort of impact that might be having, please.

Well, it's great to hear you, Bryan, that you're shopping in our stores and observing that. So yes, we definitely see it as a really positive thing. There are a lot of customers that are like you that have built up large numbers of points over a long period of time. And as we've rolled out the $10 off at Coles, we actually have seen a significant proportion of Flybuys customers who have never redeemed the dollars off their shop before, now interacting with that as an offer, which we only see as a positive thing in terms of getting value back into the hand -- into the hands of consumers. We haven't really associated with that particular incremental sales uplift, but we definitely think that it is making customers more sticky and more loyal because they know they get to use that with us.

Next question comes from Craig Woolford with MST Marquee.

Obviously, a great result on the exclusive brands and points to where customers are going. One of the conversations we're hearing about the industry is just price comparisons to ALDI, and ALDI does have a number of branded products. Is Coles looking to sharpen its pricing on those products that are stocked in both ALDI and Coles?

I couldn't comment on any particular comments, Craig. But I mean, what I would say, overall, is we are monitoring very closely our competitive position relative to ALDI. We know, at the moment, that there are a lot of customers that are trying ALDI for the first time. And as such, being in a strong position on products that they would compare across the retailers is really important.

And my other one was just a clarification on the impact that Easter may have had. So Coles' third quarter finished on the 24th of March, which means the actual Easter week falls into the fourth quarter. That will have 2 days of closed trade. Is there any impact we should take note of about the Easter week itself impacting sales compared with the week prior where you cut off for the third quarter was?

Yes. So Craig, really simply. We -- and thanks for the question. We did look at these. So we looked at whether the numbers, the sales growth numbers on a 12-week basis, which will be reported. We're, clearly, also on a 13-week basis. And when you look at that comparison, the sales growth number changes were very immaterial in that regard. So a really immaterial change to the numbers by -- from a 12- or a 13-week period, which would have included Easter.

[Operator Instructions] Your next question comes from Phil Kimber with E&P Capital.

Just a question. In the past, there's been commentary on sort of essential items have been sort of the toughest -- or one of the tougher parts of the business given all the competition. Was that still the case in the third quarter?

When you say essential items, what are you talking about?

Yes. I assume when -- the change you referred to it, they're talking perhaps health and beauty, but also laundry products, sort of -- those sort of items where is it The Reject Shop? Is it Amazon? Chemist Warehouse? Those sort of items where you've got increased Bunnings with pet food increased competition over the recent years?

Yes. I mean we definitely have seen increased competition in that health and home area, and you pulled out a number of the competitors, Bunnings, Reject Shop, Chemist Warehouse, quite a few other pharmacies who play in that space and then, of course, Amazon. We are really conscious of that. We want to price over a broad range of competitors for those products. I'd say it's very competitive from a price perspective, but it's not something we're calling out as a sort of specifically significant impact to sales in the third quarter.

And then just a clarification on that sort of footnote on the 53rd week where it says it contributes sales at a higher margin as a result of fixed cost operating leverage. So can I just assume from that, that your fixed costs are allocated on a 52-week basis, even though it's a 53-week year, I just -- I was -- I wasn't sure if I was reading that note at the back of the release properly.

Yes. No, Phil, look, just simply. So for example, some of the above store salaries, for example, like in the store support center, we pay those -- we pay those monthly on a -- for 12 times a year. So by going to a 53rd week, it doesn't necessarily mean that those costs extend over that 53rd week. So you get a bit of operating leverage through that. So that's all we're guiding to. It's not a straight pro rata, if you will, of a week. But the biggest item is things like the [indiscernible] salaries, for example, which are paid monthly.

Next question is a follow-up question from Bryan Raymond with JPMorgan.

Just a very quick one on store growth. You've had 5 new stores net in 9 months -- the first 9 months of the financial year. It seems like a bit of a slowdown versus prior years. Just keen to understand your plans around store growth. Is this a bit of an anomaly? Has there been some one-off slowdown sort of in your building profile or your opening profile? Just keen to understand if -- what the run rate should be going forward.

Yes. Thanks, Bryan. It's Charlie. I'll take that a little bit. So look, within a year, there is a lot of timing. So when you look at our results, perhaps over the last few years, you'd see Q4, there is a bigger element of Q4. So if I just remind everyone, we did call out, for example, at the start of the year, about 50 renewals for supermarkets. We're still on track to deliver that in -- for the year. We talked about 15 new stores this year with 6 closures, so a net new 9. Again, we're on track to deliver that for this year as well from a surplus perspective. So -- and look broadly, through longer term, we are targeting sort of a 1.5% net sales floor area growth. That's been a strategy of ours for a while. Now it's hard to deliver that year-on-year-on-year, but that's certainly where we aspire and target going forward.

Your next question is a follow-up question from Michael Simotas with Jefferies.

Can I just ask another housekeeping question on the 53rd week? I think I understand your point, Charlie, on things like corporate wages, et cetera. What about other line items like depreciation? I know you called out that the guidance is on a 52-week adjusted basis. Do you allocate that over the 53rd week?

Yes. So Michael, on the depreciation, for example, there is -- there will be a slightly higher depreciation with the 53rd week than the 52 week. That's why we've pulled that out as a comparable. But the rest of the costs, generally speaking, are quite variable. We, specifically, put out things like the salaries because it's just an example of how we pay that monthly, for example, and this is above store salaries that is. And then when you look at it, it doesn't -- whether it's 52 or 53rd week, it doesn't really increase the cost in that regard.

Yes. And what about interest cost and lease interest?

Only the -- take interest costs, if I can, just on notice, but I don't think we do, but I'll take that on notice.

Okay. Now that would be helpful.

There are no further questions at this time, and I'll let Ms. Weckert for closing remarks.

Well, thank you for your time this morning. I'd like to say that, overall, we're pleased with the continuation of the trends coming out of the first half. In particular, the trajectory that we're seeing in terms of the momentum we're building in the supermarkets business and also the trajectory that we're seeing on loss. We've had a solid Q3 result in supermarkets. We've looked at more challenged as customers are more cautious with discretionary spending. In supermarket, we do believe our value proposition is resonating with customers, supporting continued positive volume growth. Albeit in Q4, we are slightly a more normalized availability position and strong sales performance. Loss will continue to be a focus for us, and the loss rate has been improving when we compare it to last year since January. And we expect to see this improvement continue now through to the end of the year. And then finally, we are seeing good continuing progress on our ADCs and CFCs, in line with the previously communicated time lines. So with that, I'll sign off, and I look forward to speaking to you again at our results announcement in August. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.