Metcash convenience down, turnaround expected

Metcash Limited’s convenience business saw a 2 per cent decline in sales and an $4.3 million operating loss – but the company says it expects a positive result from the convenience business in the next half year. Overall the Metcash group’s 2017 half year results show that sales revenue increased 0.3 per cent during the half year ended 31 October 2016 (1H17) to $6.63 billion (which compares to $6.61 billion for the first half of 2106, 1H16).

The group’s supermarkets result was impacted by an increase in intensity of competition, including the expansion of competitor footprint in South Australia and Western Australia. Supermarkets earnings were $2.0 million lower than 1H16 and this reflected the impact of tough trading conditions, although the company’s Working Smarter savings and sales growth from strategic initiatives partly offset these adverse impacts.

Supermarkets sales dropped marginally by 1.0 per cent to $3.73 billion, although the importance of tobacco revenue as a percentage of total sales increased. Excluding tobacco, wholesale sales declined 4.0 per cent. The sale of stores, store closures, deflation and increased competitive action more than offset the uplift in sales achieved though strategic initiatives. Despite this the company says that continued improvement in the underlying health of its retail network was demonstrated by IGA sales growth. IGA stores like-for-like retail sales increased 0.3 per cent having grown in the four previous consecutive reporting periods.

Convenience sales declined 2.0 per cent to $758.5 million  with the convenience business reporting an operating loss of $4.3 million in 1H17 compared to a $1.1 million profit in the first half of 2016. Convenience earnings are expected to improve in the second half of 2017 due to the completion of key contract negotiations and significant cost reductions. The repositioning of the convenience business is expected to generate a positive EBIT in 2H17.

Continued sales growth in C-Store Distribution (CSD) was more than offset by a decline in Campbells reseller volumes. Improved earnings from CSD was more than offset by a further decline in Campbells earnings.

Total Food and Grocery sales declined 1.2 per cent to $4.49 billion (1H16: $4.54 billion). However, the company expects 2H17 earnings to be greater than 2H16, with the expected results benefitting from an additional trading week, Working Smarter cost savings, and the repositioning of the convenience business.

Group CEO Ian Morrice noted positive momentum in the company’s liquor and hardware operations. However the group’s results were negatively impacted by an intense trading period in the food and grocery sector, as well as a slow-down in the growth of consumer spending.

“Our focus remains on supporting independent retailers to ensure they are well positioned as ‘The Best Store in Town’, and while both our strategic initiatives and Working Smarter cost savings program are progressing well and delivering returns, they were insufficient to offset the impact of increased competition in this half year,” Mr Morrice said.

“Despite difficult market conditions in the supermarket sector, independent retailers are continuing to invest in growing their businesses, including new stores and refurbishments, and we remain focused on supporting this growth.”

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