UPDATE 2-Australia's Coles points to probable end of stockpiling, shares tumble

(Rewrites through; adds share movement, outlook, vaccine news)

Feb 17 (Reuters) - Coles Group on Wednesday warned of a “significant” moderation in supermarket sales going forward as pandemic-fuelled stockpiling is slated to come to an end with the roll out of COVID-19 vaccines, sending shares sharply lower.

Australia through aggressive targeted lockdowns has largely avoided high rates of COVID-19 cases and deaths seen in other developed countries, with inoculations for its 25 million population set to start next week.

Shares of Coles, the country’s No.2 grocer, fell 6.3% - its sharpest drop since March 31 last year - to A$17.04. Larger rival Woolworths fell more than 4% with both stocks far underperforming the broader market.

Comparable supermarket sales so far in the third quarter have moderated even further to 3.3%, Coles said. It reported strong growth of 9.7% in the first quarter that slowed to 5% by the second.

“Depending on COVID-19, vaccine roll out and efficacy, and other factors, sales in the supermarket sector may moderate significantly or even decline” in the second half of the year and into fiscal 2022, Coles said.

Jefferies called the supermarkets sales trend “very concerning.”

The grocer reported a net profit after tax for the 27 weeks to Jan. 3 of A$560 million ($434.34 million), up from A$489 million a year earlier, supported by stockpiling of groceries and household essentials amid movement curbs.

It also declared an interim dividend of 33 cents per share, slightly more than the 30 cents it paid last year.

Woolworths is set to report its half-year results next Wednesday. ($1 = 1.2893 Australian dollars) (Reporting by Sameer Manekar and Shashwat Awasthi in Bengaluru; Additional reporting by Nikhil Kurian Nainan; Editing by Arun Koyyur and Christopher Cushing)