Metcash first-half profit falls 4.7pc as competition takes toll

Sue Mitchell
Nov 28 2016
Metcash’s first-half underlying net profit fell 4.7 per cent to $82.8 million as losses in convenience retailing and weaker earnings in food and grocery wholesaling offset gains in liquor and hardware.
Reported net profit slumped 39 per cent to $74.9 million in the six months ended October 31 from $122 million in the year-earlier period, which included earnings from Metcash’s auto businesses, sold last year.
The underlying net profit result fell marginally short of consensus forecasts around $84 million.
Supermarket earnings fell $2 million, or 2.2 per cent, to $88.8 million as sales slipped 1 per cent amid intensifying competition with Woolworths, Coles and Aldi.
Convenience stores slipped into the red, swinging to a $4.3 million loss from a year-earlier $1.1 million profit as sales fell 2 per cent.
Hardware earnings rose 7.8 per cent to $12.5 million as sales rose 9.6 per cent to $581.6 million, boosted by one month’s trading from the Home Timber & Hardware business acquired from Woolworths in September.
Liquor earnings rose 4.6 per cent to $27.1 million following stronger sales in the IBA liquor network.
Chief executive Ian Morrice expects food and grocery earnings to rise in the second half, helped by cost savings and restructuring in the convenience business.
Metcash has invested more than $150 million into cutting grocery prices and helping independent retailers improve their stores to lure shoppers from Woolworths, Coles, Aldi and Costco.
The investment has taken a toll on Metcash’s earnings – food and grocery wholesaling profits fell to $180 million in 2016 from $293 million in 2014 – and margins have halved.
But Metcash’s Price Match program, where prices on key grocery lines are reduced to match those in the major chains, and Project Diamond, a store refurbishment program that boosts sales of fresh food, have helped slow a decline in market share.
The impact of the investments are being partially offset by Working Smarter cost savings, which are aimed at reducing costs by $100 million by 2018.
Similar customer-led strategies are in place in hardware, where Mitre 10’s Sapphire store program is accelerating sales growth in participating stores, and in liquor, where sales and earnings have risen despite weak industry consumption.
Metcash shares have fallen 7 per cent to $1.97 since October and are now trading below the $2 a share at which it raised $80 million in September to part-fund the $165 million Home Timber & Hardware acquisition.
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