AUSTRALIAN grocer Coles reported annual profit ahead of expectations on Tuesday, driven by robust supermarket sales and enhanced inventory control to curb theft-related losses, sending its shares to a two-year high.

The country's second-largest grocer bolstered its competitive position through private-label offerings and e-commerce sales, while moderating inflation fostered a more stable pricing environment and aided in attracting price-sensitive customers.

Shares in the Australian supermarket operator were up 2.4%, as of 0035 GMT (8:35 a.m. in Manila), after rising as much as 3.2 percent earlier in the day to A$19.050, their highest since August 2022. The benchmark S&P/ASX 200 index advanced up to 0.3 percent.

The grocer reported a 2.1 percent rise in net profit after tax from continuing operations to A$1.13 billion ($765.01 million) for the year ended June 30, beating a Visible Alpha consensus estimate of A$1.08 billion.

E&P Capital retail analyst Phillip Kimber said the figures were amplified by an extra trading week, which yielded higher-than-typical gains for the grocer.

"However, with the softer start to FY25 and higher transformation costs ― our initial thoughts are for 1-2 percent minor downgrades to VA consensus estimates in FY25," Kimber wrote in a client note.

Coles also noted a trend of moderating dairy inflation and fewer supplier price hikes, allowing more stable pricing for customers despite rising commodity costs for cheese and eggs.

Revenue from sales at the supermarket business rose 4.3 percent to A$39.04 billion.

Coles logged a 3.7 percent rise in supermarkets sales in the first eight weeks of fiscal 2025, driven by a consumer shift towards at-home dining.

The grocer, however, reported a 9.4 percent jump in FY24 capital expenditure to A$1.42 billion, mainly due to increased investments in store renewals, including in its stock loss technology.

In fiscal 2025, capital expenditure is expected to be A$1.2 billion, with more store openings planned for its supermarkets and liquor segments.

The Melbourne-based retailer declared a final dividend of 32 Australian cents per share, up from 30 cents a year earlier.