Metcash loses $56.8m despite surge in food, liquor sales

Sue Mitchell

Jun 22, 2020

AFR

Wholesaler Metcash has enjoyed a strong start to the new financial year, with sales in food, liquor and hardware continuing to surge as shoppers favour neighbourhood stores during the coronavirus epidemic.

Metcash group chief executive Jeff Adams said Metcash’s total food sales had risen 9.3 per cent in the first seven weeks of 2021 and wholesale supermarket sales had soared 16.7 per cent, excluding the loss of a contract to supply supermarket chain Drakes.

Panic hoarding and a shift to smaller food and liquor stores at the height of the COVID-19 crisis helped Metcash post its best results in years.  Photo: Louise Kennerley

Liquor sales for the first seven weeks had risen 5.5 per cent, even though liquor stores in New Zealand and on-premise customers in Australia had been hurt by COVID-19 trading restrictions.

Hardware sales had risen 9.4 per cent, underpinned by strong demand in DIY categories such as paint and gardening products.

“Clearly we’ve had a strong start and are benefitting from changes in consumer behaviour,” Mr Adams said.

“We have seen a shift in consumer behaviour due to COVID-19 including more eating at home and working from home, we’ve also seen a shift to more local and neighbourhood shopping, which fits very well with most of our network,” he said.

“Stores are seeing more new customers and customers who have not visited for a while are giving IGA a retry and there’s been a good response to changes in stores, better prices and ranges,” he said.”

“A big focus this year will be to hold those new customers and retain the market share gains we saw during COVID-19.”

The strong performance over the last two months followed strong sales growth in March and April, when consumers worried about their health during the pandemic avoided large shopping centres, enabling Metcash’s independent food and liquor retailers to gain market share.

Metcash’s wholesale supermarket sales rose in 2020 for the first time since 2012 (excluding the loss of the Drakes contract), liquor delivered its seventh consecutive year of sales growth despite the closure of ‘on-premise’ liquor outlets, and hardware returned to positive sales growth in the June-half as consumers undertook DIY projects during lockdown.

Topline group sales rose 2.9 per cent to $13.0 billion, or 2 per cent to $14.9 billion including charge-through sales.

After a 5 per cent fall in earnings in the September-half, underlying earnings before interest and tax for the 12 months ending April were down 1.8 per cent at $324.2 million.

Earnings would have been $12 million higher if not for the loss of the Drakes contract and lower contributions from lease resolutions. (Metcash released some provisions for onerous leases, boosting the 2019 result).

Underlying net profit slipped $600,000 to $209.7 million after higher interest costs, and the wholesaler reported a bottom line loss of $56.8 million after writing off $255.6 million in goodwill associated with the loss of its contract to supply retailer Drakes, COVID-related impairments and restructuring costs.

Metcash trimmed its final dividend by 0.5¢ to 6.5¢, payable August 5, taking the full-year payout to 12.5¢.

Metcash also announced the $57 million acquisition of a 70 per cent controlling stake in Total Tools and said three bolt-on acquisitions in food and liquor flagged at the time of its $330 million capital raising in April were close to being completed.

Mr Adams said the acquisition would enable Metcash to strengthen its hardware business.

Total Tools is the franchisor to the largest tool retail network in Australia with 81 bannered retail stores nationwide. It has been operating for over 30 years and targets professional tradespeople who require high quality tools for commercial use.

The Total Tools retail store network generated sales of around $555 million in the 12 months ended December 2019.