Coles Group's results were ahead of Morgan Stanley on a better gross profit margin, with the impact of stock loss offset by cost initiatives, Coles 360 and range/promotion optimisation.

Simplify and Save drove some $90mn of benefits, the broker notes, with 75% delivered in cost of doing business. This combined with a tighter focus on costs offset inflation.

Morgan Stanley sees valuation as fair, given decelerating top-line growth and continued cost pressures balanced by an improving margin trajectory underpinned by gross margin recovery, ie stock loss unwind, and efficiency gains as supply chain investment ramps up.

Equal-weight and $16.50 target retained. Industry view: In-Line.

Sector: Food & Staples Retailing.

Target price is $16.50.Current Price is $17.05. Difference: ($0.55) - (brackets indicate current price is over target). If COL meets the Morgan Stanley target it will return approximately -3% (excluding dividends, fees and charges - negative figures indicate an expected loss).

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