Coles Group (ASX: COL) has delivered a stronger underlying result for FY26, with rising supermarket sales and a sharp increase in online grocery demand helping one of Australia's largest retailers absorb ongoing cost pressures and the fallout from its employee underpayment case.

The supermarket giant reported statutory net profit of $1.09 billion for the year ended June 28, up 1% from the previous year. Underlying net profit, which excludes significant items, increased 13% to $1.26 billion.

The gap between the two measures largely reflects a $235 million significant item linked to the Federal Court judgment concerning Coles' underpayment of workers. The provision stands as a reminder of the costs that can arise from past workplace practices. Wage underpayment has been a recurring issue across Australian retail, with larger rival Woolworths having disclosed its own shortfalls for salaried staff in recent years, an issue that has kept pay compliance high on the agenda for boards and regulators. The matter has also reached into executive remuneration, with CEO Leah Weckert, who has led the group since mid-2023, forfeiting a $414,000 short-term bonus connected to the judgment.

With significant items stripped out, the underlying result provides a clearer picture of the performance of Coles' core retail operations, with supermarket sales continuing to expand despite a competitive grocery market. That market is one of the most concentrated in Australian retail, with Coles and Woolworths together accounting for the bulk of supermarket sales and Aldi and Costco holding smaller shares, a structure that has drawn regulatory scrutiny including an Australian Competition and Consumer Commission inquiry into the sector that delivered its final report in 2025 amid cost-of-living pressure on grocery prices. Supermarket sales revenue rose 3.7% to $41.47 billion, while sales excluding tobacco climbed 5.1%.

Online grocery remained one of the strongest parts of the business. Digital sales jumped 26.4% to $5.6 billion, and online now accounts for 13.6% of supermarket sales, making its continued expansion an important growth driver for the group. Australian shoppers' shift toward buying groceries online, a trend that accelerated during the pandemic, has been supported by Coles' investment in its digital supply chain, including automated customer fulfilment centres developed with UK online-grocery technology partner Ocado.

Not all parts of the portfolio shared that momentum. Liquorland sales fell 3.3% to $3.55 billion, although the pace of decline moderated in the final quarter, when sales were down 2.5%.

The result came with a larger return to shareholders. Coles declared a final dividend of 37 cents per share, taking the total FY26 dividend to 78 cents per share, compared with 69 cents a year earlier, a 13% increase in the full-year payout. The higher dividend reflects the company's ability to return more capital to shareholders. The measures that will shape the next set of results include the pace of online penetration gains, supermarket sales momentum in a market where price competition remains intense, and whether the liquor division's rate of decline continues to moderate.