Supermarket giant Coles is the latest major retailer in Australia facing an underpayment scandal, with the company expecting a $20 million hit after underpaying managers at its supermarkets and liquor division during the past six years.
The update came as the company met its upgraded first-half retail expectations, with Coles’ adjusted $725 million earnings figure confirming a strong Christmas period and a vastly improved second-quarter performance.
However, group earnings for the six months to January 5 will include a $20 million underpayments provision after a review found about 1.0 percent of the firm’s salaried workforce—more than 1100 people—had been paid below the General Retail Industry Award.
The review has revealed about 5.0 percent of salaried managers at the company’s supermarkets and liquor division have been affected, with the expected hit including $15 million payments and $5 million in interest and costs from the past six years.
Coles said its review did not relate to staff covered by enterprise agreements, who comprise 90 percent of its workforce.
“We are working at pace with a team of external experts to finalize our review,” Coles chief executive Steve Cain said on Tuesday.
“Once completed we will contact all affected team members, both current and former, to remediate any identified differences in full.”
Shares in Coles were 0.71 percent lower at $16.79 by 1225 AEDT on Tuesday.
Coles initiated the payments review after it was revealed in October last year that rival Woolworths underpaid its employees by as much as $300 million over almost a decade, only discovering it had been keeping the cash when shocked store managers complained they were earning less than their staff.
The ABC, Qantas, Super Retail Group, Commonwealth Bank, Bunnings, Rockpool Dining Group, Sunglass Hut, 7-Eleven and George Calombaris’ hospitality group MAdE are among the entities that have admitted wage underpayment.
In its first-half earnings result, Coles confirmed second-quarter comparative sales growth was 3.6 percent at its key Australian supermarkets division—meeting figures announced a fortnight ago.
Total second-half comparative sales growth came in at 2.0 percent, lifting from a dismal 0.1 percent growth in first quarter when its Little Shop sequel failed to replicate the success of the first rendition a year ago.
However, the result marks 49 consecutive quarters of comparable supermarket sales growth at the company.
Coles surprised the market this month when it flagged earnings guidance of between $710 million and $730 million for the six months to January 5, easily beating the expected $660 million to $690 million.
The company’s liquor division remains under pressure, however, as a result of range reviews and discounting.
Cain said the summer bushfires had affected liquor volumes and a review of operations and an update would be provided at the full-year results announcement.
Coles’ 0.4 percent jump in first-half retail earnings does not account for a number of non-repeating items, including new lease provisions, fuel sales agreements and the cycling out of discontinued operations such as Kmart, Target and Officeworks following the 2018 demerger from Wesfarmers.
As such, net profit for the period was down 33.7 percent to $498 million on a statutory basis.
Retail revenue rose 3.3 percent to $18.8 billion but statutory revenue decreased 5.7 percent to $19 billion.
Own Brand sales growth of 6.0 percent in the half was almost three times the rate of proprietary brands.
For the first time, Own Brand achieved sales of more than $1 billion in December, growing by 7.0 percent in the month.
Cain said comparable supermarket sales in the new year had been broadly in line with the second quarter and he expected the second half would be free of costs associated with the removal of plastic bags and increased flybuys promotions a year ago.
Coles will pay an interim dividend of 30 cents per share, fully franked.
COLES FIRST HALF BUOYED BY CHRISTMAS
- Retail sales revenue up 3.3pct to $18.8b
- Retail earnings up 0.4pct to $725m
- Statutory revenue down 5.7pct to $19b
- Statutory profit down 33.7pct to $498 million
- Maiden interim dividend of 30 cents, fully franked.
By Alex Druce
