Coles share price: where next following investor strategy day?

Coles ramps up investment in the future, investors turn cold.

Coles share price flails

A storied history can’t save you from the wrath and whims of the market.

After releasing its latest investor strategy day presentation on Thursday, 17 June, the Coles share price got crushed. By 10:26am, the stock was down over 5%, trading around the $16.18 mark.

So what got investors riled up? Below we look at some highlights from the investor presentation.

Primarily, we got new insight into Coles’ data-focused future, though investors may have been shocked just how much this future will cost to create.

Centrally, expectations around the Smarter Selling program – a blended strategy that focuses on technology and headcount reduction – was also touched on in the investor presentation.

The Smarter Selling program, is expected to provide the company with $200 million in cost savings benefits in FY22, down from $250 million in savings expected in FY21. As it stands, total cumulative benefits driven by this program are expected to hit $550 million by the close of this fiscal year.

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Up, up, costs are up

Expectations around Coles’ Ocado and Witron automation projects, which remain under construction across New South Wales, Victoria and Queensland, where also highlighted during the investor presentation.

These projects speak to the supermarket’s long-term focus, with net earnings (EBIT) benefits not expected to be realised until FY25 from the Witron project. By comparison, sales benefits from the Ocado projects are expected to come slightly quicker, anticipated to be realised in FY24 'as the customer fulfilment centres build their volumes.'

Operating expenses (OPEX) from these projects are anticipated to hit $75 million in FY22 and $160 million in FY23.

Finally, despite the savings expected to be realised off the back of the Smarter Selling program, capital expenditure (CAPEX) is expected to hit $1.4 billion in FY22, off the back of the company’s growth projects and other investments. Potentially explaining the morning’s sell-off, this CAPEX guidance would imply a significant step up from prior periods. For reference, for the FY20 full-year the company booked net capital expenditure of $666 million and in the first-half of FY21 booked net capital expenditure of $509 million.

I guess you have to spend money to make money.

Finally, FY22 depreciation and amortisation is expected to be in the range of $1.67 billion to $1.72 billion.

Coles isn’t the only one spending big on future proofing their business, mind you. Just last month Woolworths announced it had increased its stake in Quantium – a data sciences and advanced data company aimed at helping the company 'improve its decision making capabilities across pricing, ranging and promotions.

This ‘data war’ is likely to be costly for both Woolworths and Coles.

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