The tale of the 2 supermarket titans. Both large-cap businesses in the same industry, in a battle to win market share and be the dominant retailer.
Pricing wars and marketing tactics have been a common theme between the 2 multi-billion-dollar companies. Coles Group Ltd (ASX: COL) introduced the 'Little Shop' promotion and Woolworths Group Ltd (ASX: WOW) closely followed suit with the 'Lion King Ooshie' collectables. A clever strategy to strengthen brand loyalty, as customers were obsessed with these plastic toys.
Marketing feats aside, non-cyclical earnings have seen the Coles and Woolworths share prices run higher since the start of the year – up by 26% and 11%, respectively. While this could be attributed to the pantry stocking of late, both companies have been drivers of top-line growth in recent times.
Here's a closer look at how Coles and Woolworths stack up.
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Coles Group Ltd (ASX: COL)
Demerged from its parent company Wesfarmers Ltd (ASX: WES) back in November 2018, the Coles share price has been on tear, hitting a record high of $19.16 yesterday. Clearly, investors are wanting to snap up some shares before the company reports its results to the market next week on 18 August.
Goldman Sachs is expecting sales to be at $37.5 billion and its earnings before interest and tax (EBIT) at $1.39 billion – an increase on last year's results of 7.7% and 5.1%, respectively. FY20 net profit after tax (NPAT) is estimated to be around $928.2 million. While its full-year results will only reveal Coles' performance to the end of 30 June 2020, I believe the company has a good runway ahead due to its defensive qualities and strong balance sheet.
Despite Coles' growth trajectory, I would class the company as a hold for any investor based on valuation grounds – its market cap (at the time of writing) is currently $25.37 billion. I believe there will be a slight pullback in the Coles share price, which could open up the opportunity to pick up some shares at a discounted rate.
Woolworths Group Ltd (ASX: WOW)
The conglomerate's share price was trading relatively flat during the first half of the year, but has surged 14% higher across the past 2 months.
Mixed results are anticipated from the industry giant when it releases its FY20 scorecard on 27 August. According to Goldman Sachs, group sales are expected to increase to $63.52 billion – up 5.9% from the year before. Though most of the heavy lifting will be done by its supermarket business with sales totalling $41.88 billion (a rise of 7.2%), other areas such as its hotels chain are forecast to drag down overall growth. The hospitality business is said to fall to $1.31 billion in sales from the comparable year, a drop of 21.5%. Underlying NPAT is also expected to decline by 3.1%, down to $1.573 billion.
I think that the Woolworths share price is a fairly valued at the moment at its current price of $40.34. With stage 4 restrictions in Victoria and fears of a new coronavirus wave sweeping NSW, the group's retail and hotel segments will be greatly impacted as a result. In light of this uncertainty, I will be keeping my powder dry for now until I am confident Australia has passed the pandemic.
Foolish takeaway
Coles and Woolworths have both benefitted from grocery hoarding and a shift from eating out to dining home. According the Australian Bureau of Statistics, these past few months have seen the biggest rise in retail sales, however the surge in demand will return back to normality once the pandemic subsides.
If I had to choose between the two, Coles shares would be my pick as I believe the company is positioned for greater earnings and more reliable growth in the long-term.
