IGA records strong sales growth as consumers continue to shop local

Metcash has reported its financial results for the year ended 30 April, with the IGA retail network benefitting from a shift in consumer behaviour towards shopping local.

Group revenue is up 9.9 per cent to $14.3bn and including charge-through sales exceeded $16bn for the first time with sales up 10.1 per cent to $16.4bn.

In Food, increased earnings were underpinned by higher sales volumes and an improvement in the contribution from joint venture stores. This improvement was despite FY21 not including sales to Drakes in South Australia, and substantially less sales to 7-Eleven following the ending of their previous supply agreement in mid-August 2020.

In Supermarkets, total sales (including charge-through) increased 10 per cent to $8.3bn and 11.6 per cent excluding the impact of Drakes. This included a 16.7 per cent increase for the 10 months to February 2021, and an eight per cent decrease in March/April 2021 sales (ex-Drakes impact), compared with the same period in FY20 which included peak demand from the impact of COVID-related trading restrictions.

Compared with the same period in FY19, Supermarket sales increased 15.6 per cent in March/April 2021 (ex Drakes impact).

Strong sales growth was delivered in all states, particularly Victoria where demand was impacted by extended COVID related lockdowns.

The IGA retail network continued to benefit from a shift in consumer behaviour, including an increased preference for local neighbourhood shopping, migration from cities to regional areas, more flexible working and cooking at home, and the success of MFuture initiatives to retain new and returning customers gained through COVID.

The IGA retail network performed strongly with ‘like for like’ (LfL) sales increasing 10.5 per cent compared with the prior comparative year, and 18.8 per cent compared with FY19.

Food EBIT increased $9.7m (+5.3 per cent) to $192.4m (FY20: $182.7m) reflecting strong growth in sales volumes and an increase in the contribution from joint venture stores. The improvement in EBIT was $20m after adjusting for the impact of Drakes in South Australia and 7-Eleven, a decline in the contribution from resolution of onerous lease obligations and the increased contribution from joint venture stores.

The EBIT margin for Food was in line with the prior corresponding year at two per cent, despite 2H21 including an increased weighting of lower-margin charge-through and tobacco sales in the sales mix.

Group CEO, Jeff Adams said that it has been a standout year for Metcash, with record sales underpinning significant earnings growth and record operating cashflow.

“All Pillars performed strongly, and the Group has successfully navigated significant challenges and uncertainty associated with COVID, while continuing to implement our MFuture growth initiatives.

“The early success of our MFuture initiatives laid the foundations for a very successful year for Metcash and our independent retailers, with their improved competitiveness being a key factor in the retention of new and returning customers gained though COVID. This, together with the continuation of an increased preference for local neighbourhood shopping and the migration from cities to regional areas, has driven strong sales growth across our independent retail networks, significantly improving their overall health.”

Adams said that from an earnings perspective there has been strong growth across all Pillars, with Food delivering much higher underlying earnings while continuing to support its retail customers through a challenging environment.

“I am particularly proud of our teams’ and retailers’ achievements in continuing to drive the implementation of our MFuture initiatives despite the challenges of managing unprecedented levels of demand and ever-changing local health regulations. We have made significant progress with key initiatives such as our store upgrade programs, rolling out new store formats, expansion of private and exclusive label ranges and accelerating our e-commerce plans.

“Pleasingly, the Group has continued to benefit from a shift in consumer behaviour in the first eight weeks of the new financial year with Supermarkets, Liquor and Hardware up 14.2 per cent, 26 per cent and 29.1 per cent respectively, compared with the same period in FY20 which excludes the positive impact of COVID-related trading restrictions.

“Metcash’s strong Group performance and financial position, together with confidence over future operating cashflows, will result in $354m being returned to shareholders. This includes a 40 per cent increase in FY21 dividends to 17.5c per share and the announcement today of an Off-Market Buy-Back of up to $175m.

“Metcash continues to be well placed to invest in its growth plans and remains focused on championing the success of its independent retailers through further improving their competitiveness,” Adams said.

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