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Australia's Coles denies price gouging, says food inflation is a global problem

The Coles (main Wesfarmers brand) logo is seen on a facade of a Coles supermarket in Sydney

By Byron Kaye and Echha Jain

SYDNEY (Reuters) - Australia's No. 2 supermarket operator Coles Group on Tuesday rejected accusations of price gouging as its first-half profit beat analyst forecasts, saying food inflation was a global problem and its margins were steady.

Coles and larger rival Woolworths Group, which together account for two-thirds of Australian grocery sales, have been accused by lawmakers of using their market dominance to put up shelf prices more than needed at a time when 13 interest rate hikes have left more people struggling to pay their mortgages.

The companies now face Senate and competition regulator inquiries into how they set prices, with some politicians calling for more aggressive anti-cartel regulation and even for them to be broken up.

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Coles posted an underlying profit of A$589 million ($385 million) for the six months to Dec. 31, down 8.4% on the same period a year earlier but 5% above the average analyst forecast.

Coles CEO Leah Weckert said the company's earnings margins had remained flat for years and it needed profit to pay employees, suppliers and shareholders.

For at least five years the company had made less than 3 cents of profit for every dollar spent by shoppers, and "it has not gone up as we have seen inflation come through", she told reporters.

"Food inflation has been faced everywhere in the world," Weckert said. "It is a global issue. It is not unique to Australia."

The Melbourne-based company said the pre-tax earnings margin of its supermarket division shrunk to 5.1% in the half, from 5.3% a year earlier. Supermarket price inflation slowed to 3%, from 7.4% a year earlier, it added.

Supermarket sales rose 4.9% to A$19.8 billion, ahead of analyst forecasts collated by market aggregator Visible Alpha, and the company said that growth rate had continued in the first eight weeks of 2024.

Coles shares were trading 6.8% higher by midsession, against a 0.2% decline on the broader market, their biggest intraday gain in since March 2020, as analysts began upgrading full-year profit forecasts.

"A better than expected result and improving sales momentum ... is expected to support further share price gains," said E&P Capital analyst Phillip Kimber.

Woolworths last week posted worse-than-expected first-half results and said its CEO Brad Banducci would retire after more than eight years at the helm.

($1 = 1.5307 Australian dollars)

(Reporting by Byron Kaye in Sydney and Echha Jain and John Biju in Bengaluru; Editing by Pooja Desai and Jamie Freed)