COLES supermarkets could be in worse shape than the retailer has...

COLES supermarkets could be in worse shape than the retailer has let on, with internal sales figures suggesting stores are performing below budget heading into the crucial Christmas period.

Faced with poor trading over the past six weeks, Coles Group will today announce a new fuel discount designed to attract customers and boost sales.

Coles will offer shoppers 10¢ a litre off their petrol purchases, eclipsing the 6¢-a-litre discount that competitor supermarkets Woolworths and Safeway are offering.

Internal trading reports provided by sources within Coles show that total supermarket sales were $36 million, or almost 3 per cent, below budget for the month to November 26.

December trading is also off to a slow start, with revenue over the past week-and-a-half falling $11 million short of internal forecasts.

The trading figures include both the Coles and Bi-Lo branded stores.

The latest trading reports, which have not been made public, show comparative store sales — excluding Bi-Lo — gained just 2 per cent to $5.7 billion for the year to November 26.

Sales for Bi-Lo, which is rapidly being converted to the Coles brand, are down 1.5 per cent for the same period.

The leaking of sensitive financial data is the latest blow for the retailer, which has become embroiled in a damaging conflict-of-interest scandal involving its meat department. Coles was forced to sack its supermarket merchandise boss Peter Scott last month over a breach to the company's code of conduct.

While the company has continually declined to comment on the alleged breach, The Age has revealed that Mr Scott acquired a $1 million bayside penthouse apartment from one of the company's meat suppliers. It has also been revealed that the company's national livestock manager, David McKibbin, is a director and major shareholder of a transport company that is paid by Coles to cart animals.

The board has launched an internal investigation in response to emerging fears that conflicts could be widespread in the meat department.

Coles is also under intense pressure to boost earnings by 35 per cent over the next two years, having forecast profit in excess of $1 billion in 2008.

The aggressive target was unveiled to partly justify the board's rejection of an $18.2 billion takeover proposal led by US buy-out specialist Kohlberg Kravis Roberts.

It has been reported that private equity firms continue to monitor Coles. It is believed that some in Coles' supermarket department are concerned that the profit targets — which are based on internal sales budgets — cannot be achieved unless trading improves dramatically.

The lack of earnings growth in Coles' important food and liquor division — which, with petrol sales, contributes close to 70 per cent of group revenue — has been a cause of much concern among investors.

The company last month revealed that first-quarter sales to October 29 — excluding about 180 Bi-Lo supermarkets — jumped just 3.3 per cent.

Coles is lagging significantly behind its competitors, with Metcash recently reporting first-quarter sales growth of 8.3 per cent and market leader Woolworths reporting sales had jumped 9 per cent.

Coles spokesman Scott Whiffin said the company stood by its previous profit guidance: "We have absolutely nothing to call out, and we of course remain more than aware of our obligations under continuous disclosure."

Coles shares closed at $13.41, down 1¢.

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