Embattled convenience store chain McColl’s has revealed further details of the damage done to its business by the supply chain disruption that is currently affecting retailers around the UK.
In a brief trading update for the 52-week period ended 28 November, the company revealed that its total revenue had fallen 11.2% to £1.11bn. It blamed supply chain issues in the second half of the period which impacted stock availability. The completion of a store rationalisation programme also took its toll with 100 stores divested during the year, leaving it with 1,165 sites.
On a one-year basis, McColl’s like-for-like sales declined by 3.3%. However, it highlighted that two-year like-for-like growth was 9.1%, with sales retained at a higher level than before the Covid crisis.
Shares in the convenience retailer plummeted nearly 30% towards the end of last after it warned of lower annual profits due to the supply chain problems. McColl’s reaffirmed today that it is expecting adjusted EBITDA pre-IFRS 16 to come in at between £20m and £22m, down from £29.1m in the prior year.
The group’s net debt was impacted by the availability and timing of working capital outflows, although McColl’s stated that its lending banks remain supportive with ongoing discussions towards an agreement for next year.
During the period, the retailer launched format, space and range changes across 30% of the McColl’s estate. It also completed 154 conversions to the Morrisons Daily format, taking the total to 185 at the year-end, which was ahead of expectations. Last month, the company announced that it was increasing its target for Morrisons Daily conversions from 350 to 450 by the end of November 2022 following the strong performance of the format.
Jonathan Miller, McColl’s Chief Executive, commented: “FY21 has undoubtedly been a tough year for the business, starting with the impact of Covid-19 restrictions and ending with the widely reported and ongoing supply chain challenges. Although we have been able to partly mitigate these external factors, they have still had a significant impact on underlying trading.
“Despite this, we have made excellent progress on the strategic initiatives which are firmly within our control, including the accelerated roll-out of Morrisons Daily conversions within our estate, which is ahead of our expectations. These Morrisons Daily stores are generating strong sales growth and enhanced return on investment. In less than a year’s time we expect over half our revenues to be delivered by this fascia, bringing branded, supermarket-quality convenience to our customers, with material scope to deploy further into our estate.”
The group added that it is was working with its wholesale partner Morrisons to improve availability in all its stores. This has included a full review of product substitutions to address manufacturer-led product shortages, which it suggested remains a major constraint. “With these measures, we are seeing early signs of recovery, but we expect revenues to continue to be affected as we start the new financial year,” McColl’s said.
NAM Implications:
- As always, the key is how McColls’ 11.2% revenue drop compares with your McColls’ business.
- Also of interest is the fact that an 8% reduction in estate size still meant a 3.2% fall in revenue, on average.
- The issue will be the extent to which accelerated Morrisons Daily roll-out will speed recovery.
- Sufficient to restore the share price…
- …and thus reduce borrowing costs, hopefully…
