logo-loader

McColl’s warns about full-year profits as P&H failure eats into margins

Last updated: 00:05 24 Jul 2018 AEST, First published: 17:15 23 Jul 2018 AEST

McColl's
Like-for-like sales are stabilising but full-year earnings are still likely to be lower than expected

McColl’s Retail Group PLC (LON:MCLS) was the top faller in London on Monday after warning that annual profits are unlikely to show any growth this time around as it continues to recover from the collapse of Palmer & Harvey.

P&H was one of the biggest suppliers to UK supermarkets but ran out of cash last November, leaving the 700 or so McColl’s stores which it supplied low on stock.

READ: P&H collapse hits McColl’s LFLs

The poor weather didn’t help either, with many Brits refusing to venture out while the ‘Beast from the East’ battered the UK earlier this year.

As a result, like-for-like sales slipped 2.7% in the 26 weeks ended May 27, while margins fell to 25.0% (H1 17: 25.4%) due to slightly more expensive supply deals with new partners.

Adjusted underlying earnings (EBITDA) came in at £16.0mln, £0.5mln lower than the same period last year. Pre-tax profits also slid to £2.3mln (H1 17: £4.5mln).

Total revenue increased by 19.2% to £601.7mln (H1 17: £504.8mln) thanks to the acquisition of 300 new convenience stores last year. The interim dividend was maintained at 3.4p.

McColl’s struck a deal with WM Morrison Supermarkets PLC (LON:MRW) last year which would see the supermarket giant supply all of the 1,300 McColl’s stores in a bid to avoid a repeat of the P&H saga.

Around 1,000 of those shops have completed the transition with the remaining 300 or so set to switch “shortly”.

2018 earnings to match last year’s

That, along with the recent warm weather, has helped to stabilise sales, although like-for-likes in the first few weeks of the second half are still down.

“In light of the challenges we have faced in H1, and planned H2 recovery, we now expect the 2018 full year adjusted EBITDA to be at a similar level to the prior year,” read Monday’s announcement.

Analysts, who had been expecting a double-digit rise in underlying earnings, moved quickly to lower their forecasts.

Liberum now expects McColl’s to post full-year adjusted underlying earnings of £43.4mln on revenue of £1.23bn, down from £50.2mln and £1.24bn previously.

Boss ‘incredibly proud’

“I am incredibly proud of our team and the extraordinary efforts they have shown in dealing with one of the most challenging six months the business has ever faced,” said chief executive Jonathan Miller.

“During the first half, we experienced unprecedented supply chain disruption following the collapse of P&H last November.

“This temporary upheaval has inevitably impacted sales and margin performance in the c.700 stores that were formerly supplied by P&H, and has also had knock-on effects on the rest of the estate.”

He added: “However, the switch to Morrisons supply in the 1,300 stores intended for this year has been accelerated, and will now be completed in early August, ahead of schedule.

“At the same time, we have relaunched the Safeway brand at McColl's, providing our customers with a more competitive and higher quality food offer.”

Finance chief to depart

In a separate statement, McColl’s confirmed that chief financial officer Simon Fuller is stepping down to take up the same role at newly-formed magazine and newspaper publisher Reach PLC (LON:RCH).

Fuller will remain with the group until a successor has been appointed and an orderly handover completed.

“On behalf of the board, I would like to thank Simon for the significant contribution he has made to the business over the last three years, during which time McColl's has gone through a period of transformational growth,” said CEO Miller.

Shares were down 13.3% to 182p in late afternoon trading.

--Updates for share price--

Australian Strategic Materials signs US$600 million LoI

Rowena Smith, CEO and managing director of Australian Strategic Materials Ltd (ASX:ASM, OTC:ASMMF), joins Jonathan Jackson in the Proactive studio to discuss the company’ s Dubbo Project, in Central West New South Wales. This project aims to extract and process critical minerals and rare earth...

9 hours, 37 minutes ago