On Monday, Metcash revealed its full-year accounts, posting a 2 per cent rise in revenue to $14.9 billion and underlying profit after tax of $209.7 million, broadly in line with analyst expectations.
A $237.4 million impairment from the loss of the 7-Eleven supply contract drove the $3 billion retailer to a statutory loss of $45.9 million, although it said overall earnings would have improved by $12 million if not for the loss of a separate contract with Drakes supermarkets and the impact of onerous leases.
Metcash supplies IGA, Mitre 10, Home Timber & Hardware and Cellarbrations bottle shops, all of which were beneficiaries of a coronavirus-driven bump in sales.
The company’s supermarkets division reported underlying sales growth for the first time in eight years.
Supermarket wholesale sales, excluding tobacco and the Drakes contract, increased 6.3 per cent, and total food sales grew 3.5 per cent to $9.1 billion for the year. In the second half of the financial year, sales grew 8 per cent as customers preferred the more remotely located independents over major supermarkets in larger shopping centres.
Costs were higher, however, with food margins dipping 0.2 per cent. Mr Adams said the business had incurred extra costs as it added extra capacity in its supply network during the panic buying peak.
With Victoria reporting a steady increase in cases over the last week, concerns are mounting over a potential second wave of COVID-19 infections. Mr Adams said he had spoken to the state teams overseeing the stores in Melbourne’s outbreak areas, but said he was not overly concerned about a fresh bout of panic buying.
“Obviously, we’d all be concerned about [a second wave], but from a business perspective we’re prepared, we’ve got plans in place, and it did come about we think that we’d be in a good position,” he said.
Despite a 1.8 per cent jump in sales across the second half of the year, Metcash’s hardware division reported a 1.3 per cent decline in sales for the full-year, down to $2.08 billion. Liquor sales also declined, down 0.3 per cent to $3.68 billion.
Metcash’s full-year runs from May to April, making it one of the first large companies to report its full-year results following the COVID-19 crisis. However, the results do not reflect the continued jump in sales through May, which the company said had been very strong.
For the first seven weeks of the 2021 financial year, supermarket sales ex-tobacco and Drakes spiked 16.7 per cent, hardware sales grew 9.4 per cent and liquor sales were up 5.5 per cent.
“Honestly, we thought it would drop off after we got through that spike, but it never did. So there’s clearly been a change in behaviour,” Mr Adams said.
Metcash also revealed it was in the final stage of negotiations with national tools retailer Total Tools to acquire 70 per cent of the business for $57 million. Total Tools operates 81 stores across the country and reported $555 million in revenue for the 2019 calendar year.
The acquisition, which is subject to regulatory approval, will look to further strengthen Metcash’s position in the hardware market. Metcash maintains an option to acquire the remaining 30 per cent of the business in the next three years.
Metcash shares rose 1.1 per cent to $2.86 after dropping earlier in the day. Citi analyst Bryan Raymond said the trading update for the last two months was strong and company appeared to be winning share in the grocery market. However, the earnings decline was a downside.
“Metcash is delivering strong sales growth but is yet to see this translate to meaningful earnings growth,” he said. “We expect the trading update and Total Tools acquisition would drive modest earnings upgrades for the 2020-21 financial year.”
Metcash will pay a final dividend of 6.5¢ on August 5, marking a full-year payout of 12.5¢.
Dominic Powell writes about the retail industry for the Sydney Morning Herald and The Age.