Coles Group Ltd (ASX:COL) reported higher underlying Earnings in FY26 as supermarket profitability and eCommerce growth supported the result. Group EBIT excluding significant items rose 9.9% to A$2.322 billion, while net profit after tax excluding significant items increased 13.7% to A$1.255 billion. The company lifted its full-year Dividend to 78 cents per share and is planning around A$1.55 billion of Capital Expenditure in FY27 as it accelerates Investment in stores, automation and digital capability.

Coles operates supermarkets, liquor businesses, eCommerce platforms, financial services and retail media activities across Australia. Its earnings are driven mainly by supermarket sales, operating margins, customer volumes, online growth and cost management.

FY26 sales and underlying earnings increased

Group sales Revenue reached A$45.58 billion in FY26, representing growth of 2.8%.

EBIT excluding significant items increased 9.9% to A$2.322 billion from A$2.112 billion.

Net profit after tax excluding significant items rose 13.7% to A$1.255 billion from A$1.104 billion.

The faster growth in underlying earnings compared with sales indicates that profitability improved during the year.

Reported earnings showed a more moderate increase.

Reported EBIT was A$2.087 billion, compared with A$2.077 billion in the previous year, while reported net profit after tax rose to A$1.09 billion from A$1.079 billion.

The difference between reported and underlying earnings reflects significant items recorded during the period.

Supermarkets remained the main earnings driver

Supermarkets sales revenue increased 3.7%.

EBIT from the division rose 12.2%.

The higher earnings growth relative to sales indicates that the supermarket Business generated improved profitability during FY26.

This can be influenced by product mix, cost initiatives, supply-chain efficiency and changes in promotional activity.

Supermarkets remain Coles' largest earnings contributor, making the division central to group profitability.

Future performance will continue to depend on food inflation, customer traffic, pricing, wages and competitive conditions.

eCommerce sales rose 26.4%

Supermarkets eCommerce sales reached A$5.6 billion, up 26.4%.

The increase highlights the continued shift towards online grocery shopping.

Digital growth can support customer convenience and sales expansion, but online fulfilment also carries additional costs.

Picking, packing, home delivery and technology investment can affect margins if scale and automation do not improve efficiency.

For that reason, Coles' investment in automated distribution and fulfilment capability remains closely connected to the Economics of its online business.

Liquor sales declined

Liquor sales revenue fell 3.3% during FY26.

This contrasted with the growth recorded in supermarkets.

The division remains exposed to discretionary spending, household budgets and competitive pricing.

Any recovery in Liquor could provide an additional earnings contribution in FY27, while continued weakness would remain a drag on overall group growth.

Early FY27 commentary indicated improved momentum in Liquor compared with the prior quarter.

Cash flow supported higher Shareholder distributions

Operating Cash Flow before interest and tax was A$4.279 billion.

Coles reported a cash realisation ratio of 101%.

Gross operating capital expenditure was A$1.189 billion during FY26.

Net Debt excluding leases stood at A$1.78 billion.

These figures indicate that the group continued to generate cash while funding investment and shareholder distributions.

Cash generation remains important because Coles is increasing capital expenditure in FY27.

Full-year dividend increased to 78 cents

Coles paid an Interim Dividend of 41 cents per share and declared a final dividend of 37 cents per share.

Both payments were fully franked.

This took the FY26 full-year dividend to 78 cents per share, an increase of 13%.

The rise in dividends was broadly consistent with the 13.7% increase in underlying net profit.

The final dividend was paid in September 2026.

Future dividend decisions will continue to depend on earnings, cash generation, capital spending and board approval.

FY27 capital expenditure is set to rise

Management expects FY27 capital expenditure of approximately A$1.55 billion.

This compares with gross operating capital expenditure of A$1.189 billion in FY26.

The increase reflects accelerated investment in stores, automation, digital technology and supply-chain infrastructure.

A major component is the development of a Victorian automated distribution centre.

The company is also investing through the Coles Capability Centre and broader technology initiatives.

The larger capital programme is intended to improve long-term operating efficiency, but it will require more cash to be directed towards investment during FY27.

Automated distribution remains a key focus

Coles continues to invest in automation to improve supply-chain productivity.

Automated distribution centres can reduce manual handling, improve inventory flow and increase consistency across store replenishment.

These projects can also support a larger store network and higher online volumes.

However, automation projects require significant upfront capital and carry implementation risk.

Construction delays, technology issues or slower-than-expected productivity benefits could affect expected returns.

The performance of the Victorian automated distribution centre will therefore be an important area to monitor.

Early FY27 trading remained consistent

Management indicated that sales growth during the first eight weeks of FY27 was consistent with the fourth quarter of FY26.

eCommerce penetration reached 15.7%.

This means online sales are becoming a larger part of the supermarket revenue base.

Continued digital growth may support revenue, but profitability will depend on fulfilment costs and customer mix.

The early trading update provides an initial indication of demand, although it covers only a limited portion of the financial year.

Capital spending could affect free cash flow

The planned rise in capital expenditure means a larger share of cash generated from operations may be directed towards investment.

If earnings continue to grow, Coles may be able to absorb the higher spending while maintaining dividends and balance-sheet flexibility.

If earnings growth slows, however, higher capital expenditure could place more pressure on free cash flow.

This makes the relationship between operating cash flow, Capital Investment and shareholder distributions particularly relevant in FY27.

Household budgets remain an important sector driver

Coles operates in a sector where grocery Demand is relatively recurring, but customer behaviour can change when household finances tighten.

Consumers may move towards lower-priced products, private-label ranges or promotional items.

Food Inflation can support nominal sales growth but may also affect volumes.

Wage costs, logistics expenses and supplier pricing are additional factors.

Competition from other supermarket and discount retailers also influences pricing and margins.

The Reserve Bank of Australia's increase in the official cash rate to 4.60% in September 2026 adds further pressure to borrowing costs for many households, which may influence discretionary spending patterns.

Regulatory scrutiny remains relevant

Supermarket pricing and supplier relationships continue to attract regulatory and political attention.

Changes in regulation could affect pricing practices, promotional structures, supplier negotiations and compliance costs.

For a large supermarket operator, these issues can have financial and operational implications.

Coles therefore needs to balance customer affordability, supplier relationships and profitability while operating within an evolving regulatory environment.

Key risks for FY27

Household spending pressure remains one of the main risks.

Higher living costs can alter customer behaviour even where grocery demand remains relatively stable.

Cost inflation across wages, logistics and store operations can also affect margins.

Execution risk around the Victorian automated distribution centre and other capital projects is another factor.

Liquor remains a weaker segment and could continue to weigh on group growth if conditions do not improve.

Significant items also reduced the difference between underlying and reported profit in FY26, meaning future one-off costs should remain in view.

Higher capital spending could also reduce financial flexibility if operating cash generation weakens.

What to watch next

The Annual General Meeting scheduled for November 2026 will provide another opportunity for management to update shareholders on early FY27 trading.

Supermarket margin trends will remain important, particularly after EBIT growth materially exceeded sales growth in FY26.

eCommerce penetration and fulfilment economics will also be relevant as online sales become a larger part of the business.

Progress on the Victorian automated distribution centre and broader store investment programme will provide an indication of how effectively the higher capital budget is being deployed.

Liquor performance will also remain an area to monitor after the division reported lower FY26 sales.

The FY26 result shows Coles increasing underlying earnings and dividends while preparing to raise investment spending in FY27. The key question for the year ahead is whether supermarket earnings and eCommerce growth can continue to support both shareholder distributions and a larger capital programme.