Metcash report positive annual results

Nick Miles
Head of Insight - Asia Pacific
@RetailAnalysis

Date : 29 June 2020

Metcash has released results for its financial year ending 30 April 2020, with sales, including charge through, up 2.0% to AU$14.9bn and total EBIT up 1.5% to AU$334.9m.

Food sales including charge through up 3.5% to AU$9,104m

Sales were impacted by the loss of the Drakes account in South Australia, which terminated at the end of September. Despite this, Supermarket sales increased 3.8% to AU$7,521.9m, excluding Drakes growth would have been +6.1%. Although sales were boosted by the impact of COVID-19 in March and April, sales for the 10 months to the end of February were up 0.2%.

Wholesale sales (exc. Tobacco) were up 3.9% for the year (+6.3% excluding Drakes), with sales up 8.0% in H2 (+12.3% excluding Drakes), reflecting the uplifts in volumes created by COVID-19. The growth in wholesale sales is Metcash’s first since FY12. This, alongside LFL sales growth in IGA stores of 5.6%, has given management reassurance that their strategy is working. Convenience sales increased 2.0% to AU$1,590.8m, driven primarily by tobacco sales.

Food sales up c.18% in March and April

COVID-19 has resulted in more people looking to shop locally and Metcash has benefitted, with an increase in new customers, basket size and a decrease in frequency of customer visits via its retail banners. It launched IGA Shop Online in May, with an initial range of 1,800 SKU’s, has worked with government to help supply regional and remote communities, plus introduced numerous initiatives to support the communities it serves.

MFuture strategy appears to be gaining traction

Other significant developments over the past 12 months include; the opening of its first SupaValu large format store in Doonside in NSW, improving the consistency of the core offer that IGA stores deliver, the roll out of ‘Low Prices Every Day’, plus improvements to IGA Xpress stores. It has expanded its CommunityCo private label, with new ranges in ready meals and further expansion to come next year. It opened 36 IGA stores and closed 35, with 124 stores completing its DSA programme, with average sales growth around 15% post refresh. It continues to look to remove cost from its model, with a new DC in SA operational by the end of the clendar year, and further cost out initiatives being implemented.

Liquor sales including charge through up 0.3% to AU$3,678m

COVID-19 had the opposite effect on liquor sales to that of food, with an uplift in retail sales not being enough to offset the impact to sales created by the closure of on-premise establishments. Up until the end of February liquor sales were up 2.2% YOY, driven by the continuing trend of premiumisation and also strong on-premise sales. LFL sales in the IBA banner group retail stores accounted for c.53% of liquor sales and grew 3.2%, supported by investment in the network and the upturn in sales created by Coronavirus. Metcash launched an online liquor service, called shopmylocal.com.au, with over 200 retailers signing up within the first four weeks.

A tough year over, more uncertain times ahead...

Over the past 12 months Metcash has had to deal with nationwide bushfires, the loss of the Drakes contract and COVID-19. However, the business has ridden these challenges well and has made good progress against its strategy. The aim now will be to try and keep hold of the new customers it has attracted during the past few months and maintain momentum into FY21. In the first seven weeks of the new financial year food sales were up 9.3% and liquor 5.5%.

Group CEO, Jeff Adams, commented, “I am pleased to report very admiral results in a year of unprecedented challenges. Extraordinary demand levels in the Food pillar in March and April resulted in strong sales in FY20. Going forward we are well positioned with a strong balance sheet to help manage through the current uncertain environment, while continuing to invest in growth opportunities.”