Coles shares have plunged to a six-month low after the supermarket giant reported slowing sales growth.
Same-store supermarket sales rose just 2.4 per cent in the second quarter after jumping 4.6 per cent in the first quarter, for total comparable sales growth of 3.4 per cent for the 27 weeks to January 4.
In the first seven weeks of the third quarter, Coles' supermarket sales were up 3.7 per cent, lagging Woolworths' 5.8 per cent sales growth.
"Coles delivered a solid set of numbers this morning, but in the shadow of Woolworths' blockbuster result earlier this week, solid wasn't quite enough for investors," eToro market analyst Josh Gilbert said.
"Coles and Woolworths are fighting hard for the same cost-conscious shopper right now, and although these results are solid, the market may be slightly disappointed it's not brighter, given the strong rebound from Woollies earlier in the week."
Coles shares were down 8.5 per cent to $20.32 at midday on Friday, their lowest level since August.
Coles Group chief executive Leah Weckert said the company had delivered a strong set of results in a highly competitive operating environment.
Including Coles' Liquorland stores, the group's sales grew 2.5 per cent to $23.6 billion.
Its net profit fell 11.3 per cent to $511 million, after including the $165 million impact of an unfavourable Federal Court decision related to wages for in-store managers.
Excluding that, Coles' profit was up 12.5 per cent to $676 million.
The group completed the year-long conversion of its Vintage Cellars and First Choice Liquor Market stores to the Liquorland banner during the half.
But the liquor market remained subdued and competitive intensity increased, "particularly at the big-box end of the market," Ms Weckert said, in likely a reference to Dan Murphy's.
Liquorland sales fell 3.2 per cent to $1.9 billion, with earnings before interest and tax dropping 37.3 per cent to $42 million.
The group also expanded its partnership with Uber Eats and saw Flybuys' active membership grow 6.2 per cent to exceed 10 million.
Ms Weckert also acknowledged that Coles' "major competitor" - meaning Woolworths - had recently been outperforming the market and gaining market share.
"But that (market) share is not coming from us, it's coming from others," she told an earnings briefing.
"We feel that we have the right pitch in terms of customers at the moment, because we are retaining customers, and we are stepping it up."
As well, Coles had been having quite a bit of internal discussions about the impact that Ozempic-style GLP-1 weight loss drugs were having on shopping trends, Ms Weckert said.
There was already a general trend towards healthy eating, she added.
"We've seen a shift, even just in the last six months, in the penetration of fresh produce that is hitting customers' baskets," she said.
"You've got snacking fresh produce items like baby cucumbers, snacking carrots, celery sticks, they're all in double-digit growth," she said.
Coconut water sales are up 30 per cent and health powders and supplements are also on the rise, Ms Weckert said.
Coles will pay a fully franked interim dividend of 41 cents, up from 37 cents last time.
Coles had spent this week defending Australian Competition and Consumer Commission claims that it misled customers with fake discounts on thousands of products.
The retail giant inflated prices before lowering them to above their original levels under its "Down Down" campaign, launched in 2021, the consumer watchdog alleged.
Ms Weckert said that Coles would work through the outcome of that case, whatever it might be.
"It comes back to making sure that we're doing the right thing across the basket, not in any particular category, but lowering the cost of shopping and giving customers the right value in the right way and right in the right category," she said.
