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Coles flags $20m hit from wage underpayments

Business

Supermarket giant Coles is the latest major retailer to be caught up in an underpayment scandal, with the company expecting a $20 million hit after underpaying managers at its supermarkets and liquor division over the past six years.

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The update comes as the company reports met its upgraded first-half retail earnings expectations, with Coles’ adjusted $725 million figure confirming a strong Christmas period underpinned a vastly improved second-quarter performance.

However, group earnings for the six months to January 5 will comprise of a $20 million underpayments provision after a review found about 1.0 per cent of the firm’s salaried workforce had been paid below the General Retail Industry Award.

The review revealed about 5.0 per cent of salaried managers at the company’s supermarkets and liquor division had been affected, with the hit including $15 million payments and $5 million in interest and costs.

Coles said its review did not relate to team members covered by enterprise agreements, who comprise 90 per cent of its workforce.

“We are working at pace with a team of external experts to finalise our review,” Coles chief executive Steve Cain said in a release on Tuesday.

“Once completed we will contact all affected team members, both current and former, to remediate any identified differences in full.”

It was revealed in October last year that Coles’ fierce 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 recently.

In its first-half earnings result on Tuesday, Coles confirmed second-quarter comparative sales growth at Coles’ key Australian supermarkets division came in at 3.6 per cent – meeting figures announced a fortnight ago.

Total second-half comparative sales growth came in at 2.0 per cent,  lifting from a dismal 0.1 per cent growth in first quarter when its Little Shop sequel failed to replicate the success of the first rendition a year ago.

The result does, however, mark 49 consecutive quarters of comparable supermarket sales growth at the company.

Coles surprised the market earlier this month when it flagged earnings guidance of between $710 million and $730 million for the six months to January 5, easily beating the $660 million to $690 million that had been expected.

The company’s liquor division remains under pressure, however, as a result of range reviews and discounting activity.

Cain said the summer’s bushfires had also had an impact on liquor volumes and a review of operations and an update would be provided at the full-year results announcement.

Coles’ 0.4 per cent 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 per cent to $498 million on a statutory basis.

Retail revenue rose 3.3 per cent to $18.8 billion but statutory revenue decreased 5.7 per cent to $19 billion.

Own Brand sales growth of 6.0 per cent in the half was almost three times the rate of proprietary brands.

For the first time own Brand achieved sales in excess of $1 billion in December, growing by 7 per cent 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.

– with AAP

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