McColl’s has posted a significant decline in first half profits, although underlying sales improved and the group pointed to progress it had made in stabilising the business in a “highly competitive” market.
Over the 26 week period to 26 May, the convenience retailer’s pre-tax profit plummeted from £2.3m to £0.2m on total revenue almost unchanged at £611.1m. Adjusted EBITDA fell 19% to £13m.
Profits weakened due to a hit to gross margins (down to 25.4% from 26.1%) from higher cost prices following the wholesale supply switch to Morrisons and softer sales of a number of higher margin impulse lines, driven by the poor weather and strong prior year comparatives.
However, McColl’s highlighted that the reduction in gross margin had moderated as it continued to make progress, both through self-help initiatives such as improved promotional investment planning, and by working with Morrisons to leverage their combined scale.
Whilst total sales were impacted by the closure/sale of 41 underperforming newsagents and smaller convenience stores, like-for-like sales rose 1%. However, LFL sales were up just 0.4% in the second quarter with McColl’s pointing to a significant drop-off in the final month of the half as the whole sector suffered from strong year-on-year comparatives.
The group highlighted that its performance was supported by good growth in beers, wines and spirits following a recent range review, as well as soft drinks and food-to-go.
McColl’s said that it was continuing to invest in its estate with 17 store refreshes completed. It also opened three new convenience stores and is currently trialling the Morrisons Daily fascia at 10 of its sites.
Chief Executive Jonathan Miller commented: “The key priorities that we outlined for this year were to stabilise the business and to refocus on retail execution following a challenging 2018. We have made good progress on both of these fronts whilst also maintaining strong capital discipline, reducing debt whilst sustaining appropriate levels of investment.”
He added: “I am encouraged by the performance we have delivered as we regain greater operational stability, but we still have more work to do in the second half of the year. The market remains highly competitive, with challenging trading conditions, given the unseasonable weather and uncertain economic climate.
“Despite this, we expect to be broadly in line with expectations for the full year and we are confident that our strategy, combined with the cash generative and profitable nature of our business, will deliver sustainable returns for shareholders in the long term.”
