Competition hits Metcash earnings, sales

iga, metcash, supa iga , supermarketMetcash’s profit and sales have slumped, and revenue is flat, as the wholesale grocery and produce distributor battles difficult trading conditions.

The company says its half-year net profit had plummeted 38.6 per cent to $75 million in six months to October 31.

It says the acquisition of Home Timber and Hardware from Woolworths and the cost of implementing the Worker Smarter cost-cutting program wiped $7.9 million from profit in the period.

Plus, discontinuing operations had boosted profit by $35.1 million in the same period of last year, it says.

Metcash chief executive Ian Morrice on Monday said difficult trading conditions had also hit revenue, which was nearly flat in the first half, rising by just 0.3 per cent to $6.63 billion

“We continue to see positive momentum in our liquor and hardware pillars. Our group results were, however, 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,” Morrice said in a statement.

He said the lower earnings from food and grocery more than offset earnings growth from the liquor and hardware divisions.

“When I look back on these past six months across the three-and-a-bit years I’ve been in this job, this is most definitely the most intense period of competitive activity,” Morrice said.

“It’s quite sobering when you look at the supermarket sector and one per cent like-for-like is the industry norm now.

“We have seen footprint growth from Aldi into SA and WA, we have seen over $1 billion in price investment from the market leader and competitive responses to that.

“Against that backdrop, we think we have withstood it all quite well.”

Investors appeared to agree, with Metcash’s shares rising 5.06 per cent, or 10 cents, to $2.075.

Market analyst from optionsXpress Ben Le Brun said a worse result had been expected.

“Metcash has been priced to oblivion and anything that suggests things aren’t so quite dire is going to see bit of a correction to the share price to the upside,” he said.

“There is such a significant short sold interest in the stock as well and what we are seeing is probably primarily a short covering rally and some optimism that the turnaround strategy is starting to take some shape.”

Food and Grocery sales declined 1.2 per cent to $4.49 billion and supermarkets sales dropped 1.0 per cent to $3.7 billion.

Wholesale sales declined 4.0 per cent amid sales of stores, store closures, and increasing competition, particularly in South Australia and Western Australia.

Convenience stores sales also dropped, by two per cent to $758.5 million.

Food and grocery and supermarket earnings were sharply lower, while convenience stores reported an operating loss of $4.3 million, after posting a profit of $1.1 million in the same period last year.

However, Metcash said it expects convenience store earnings to rebound in the current half once contract negotiations are completed and cost-cutting measures are implemented.

Metcash did not declare an interim dividend, as previously announced.

AAP

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