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Coles to beat forecasts on solid Christmas

Alex Druce
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Coles

Coles' supermarkets divison delivered better than expected sales growth during the second quarter

Coles says a bumper Christmas performance will help it trump first-half earnings expectations, with strong holiday season supermarket sales tipped to offset margin pressure at its liquor division.

In an unexpected trading update on Thursday, the retail giant flagged its earnings for the six months to December would be between $710 million and $730 million - down on $733 million earnings a year earlier - but easily beating the $660 million to $690 million expected by the market.

The company's share price briefly climbed to a peak of $16.96 in early trade - a gain of nearly 2.0 per cent - but retreated throughout the morning and was 0.24 per cent lower at $16.61 by 1303 AEDT.

Chief executive Steve Cain said the company's main supermarkets division delivered comparable sales growth of 3.6 per cent in the second quarter - up on guidance of about 2.2 per cent.

This will push Coles' first half comparable sales growth up to 2.0 per cent.

The company's official first-half figures to be released on February 18 will also be helped by a number of one-off earnings gains, including $33 million from property sales, and $15 million via a workers compensation self-insurance release.

The removal of plastic bags and increased Flybuys promotions a year ago have also cycled through, further helping to boost profit for the period.

It wasn't all rosy news though, with Coles warning liquor earnings in the first half had suffered as a result of margin pressure, while also being impacted by clearances and discounting.

However, comparable first half liquor sales are still expected to improve from a 0.1 per cent decline a year ago, with a 1.5 per cent growth figure tipped over the December half.

Comparable first-half sales growth at the company's service station and convenience store division is also set to improve, up 2.9 per cent.