Highlights

  • Coles Group delivered Q3 FY26 Supermarkets comparable growth of 3.6%, ahead of the broader market, with strong Volume-led growth ex-tobacco of 5.7% and eCommerce up 24.8%.
  • Jefferies maintains a Buy rating on COL with a price target of AUD 25.50, representing approximately 19% upside from the current trading price of AUD 21.41.
  • Rising supplier cost pressures, higher fuel and freight costs, and softer Liquor sales are near-term headwinds that management is actively managing as COL heads into Q4 FY26.

Coles Group Limited (ASX:COL) is one of Australia's two major supermarket operators, running more than 850 Coles supermarket stores, Liquorland, First Choice Liquor, Coles Express, and a rapidly growing eCommerce platform. Coles competes directly with Woolworths Group in the Australian grocery market and has been executing a multi-year transformation programme focused on value, digital capability, and Supply chain efficiency.

Coles shares were trading at AUD 21.41 on 19 May 2026, up 0.56 or 2.69% on the day, though the longer-term one-year performance was not specified in the available data. The current share price sits approximately 19% below Jefferies' price target of AUD 25.50, a gap that reflects either caution around near-term cost pressures or a broader re-rating opportunity as the Business continues to execute.

Broker Perspective: Jefferies Maintains Buy at $25.50

Jefferies has issued a Buy rating on Coles Group with a price target of AUD 25.50, reflecting the broker's confidence in COL's structural positioning within Australian grocery retail, its growing eCommerce platform, and the defensive Earnings characteristics of supermarket Retailing in a cost-of-living-pressured consumer environment.

Q3 FY26 Sales Performance: Above-Market Growth Continues

Coles released its Q3 FY26 sales update on 1 May 2026, covering the twelve weeks from 5 January to 29 March 2026. Group sales Revenue grew 3.1% to $10.703 billion, with the headline Supermarkets segment delivering comparable growth of 3.6% on sales of $9.781 billion — ahead of the broader market and continuing a consistent track record of Market Share defence.

Volume-led growth in Supermarkets ex-tobacco was particularly encouraging at 5.7%, suggesting that consumers are responding to Coles' value initiatives and trading up from eating out to cooking at home — a dynamic that typically benefits large format grocery retailers during periods of cost-of-living pressure. eCommerce sales grew 24.8% with penetration increasing to 13.6% of Supermarkets sales, a meaningful contributor to both revenue and the longer-term strategic shift toward digital grocery fulfilment.

The Liquor division, however, was a weaker performer, with comparable sales declining 4.3% as consumer sentiment retreated in March. Management flagged expected flow-on impacts to Liquor earnings in the second half due to reduced Fixed Cost fractionalisation — a meaningful caveat that investors should Factor into their second-half earnings expectations.

Cost Pressures Emerging: A Key Watch Point for 2H FY26

While the Q3 sales result was broadly positive, Coles' management was candid about an increase in cost pressures heading into the fourth quarter. The company noted a rise in supplier cost price increase requests and higher costs within its own operations, particularly in fuel, freight, and packaging — reflecting the broader inflationary impact of geopolitical tensions and elevated Commodity input prices.

Management indicated it is actively managing these pressures and will seek to mitigate impacts where possible, balancing the needs of customers and suppliers. Coles' extensive own-Brand portfolio — which typically carries superior margins and provides a value alternative to national brands — is highlighted as a key lever in managing both customer price perception and internal Margin resilience.

eCommerce and Strategic Positioning

The 24.8% eCommerce growth in Q3 is a standout strategic metric. As eCommerce penetration reaches 13.6% of Supermarkets sales, Coles is building a meaningful digital revenue stream that carries significant long-term implications for customer engagement, data monetisation, and supply chain optimisation. CEO Leah Weckert has articulated a clear focus on value and availability as the twin pillars of the customer proposition in the current environment, with eCommerce platforms playing a central role in meeting shoppers wherever and however they choose to engage.

The Coles own-brand portfolio also continues to gain traction as consumers manage household budgets by shifting toward private label products, reinforcing the portfolio's role as both a margin lever and a customer retention mechanism. This structural dynamic is one of the key underpinnings of Jefferies' positive Investment thesis.

Q4 FY26 Outlook and Longer-Term Considerations

In the early part of Q4 FY26, Coles reported that Supermarkets sales revenue growth had remained broadly in line with Q3. This continuity is reassuring and suggests the volume-led trajectory is holding despite the more complex external environment. The Product Supply Agreement with Viva Energy Group, which contributes revenue to the Other segment, is due to expire by the end of November 2026, removing a contributor to group revenue in FY27.

Management's broader commentary emphasises that Coles is well-placed to continue delivering on its customer value proposition through its own-brand depth, leading eCommerce platforms, and supply chain capability. The challenge in the near term is managing the balance between passing through cost increases to consumers — risking volume loss — and absorbing them internally to protect market share.

Conclusion

Coles Group has demonstrated consistent execution in a demanding operating environment, delivering above-market Supermarkets growth, strong eCommerce momentum, and disciplined own-brand positioning. The near-term headwinds from rising input costs and softer Liquor performance are real but navigable for a business of Coles' scale and operational Maturity. Jefferies' Buy rating at $25.50 reflects conviction in the medium-term earnings trajectory, underpinned by volume-led supermarket growth, digital penetration gains, and the structural tailwind of consumers cooking at home. The Q4 FY26 result, expected in the coming weeks, will be the next key data point for investors assessing whether the re-rating opportunity is beginning to materialise.