McColl’s profits plummet after supply chain disruption but investors welcome recovery signs
Profits halved at McColl’s in 2018 as like-for-like sales also slipped, it said today, blaming supply chain disruption as a key partner went under, even as overall revenue grew.
But shares grew 13 per cent to 57.2p as investors welcomed the retailer cutting debt as like-for-like sales improved.
The figures
Profit before tax plunged to £7.9m for the year to the end of November, down from £18.4m in 2017, a decline of 57 per cent.
Like-for-like sales dropped 1.4 per cent the high street convenience retailer said, but picked up towards the end of the year to grow 1.2 per cent in the first quarter of 2019.
Revenue rose 8.1 per cent to £1.24bn as McColl’s upped grocery and alcohol sales as a proportion of overall income to 34 per cent.
However, its profit margin slipped almost one per cent to 26 per cent owing to supply chain issues.
The retailer also cut into its debt pile, slashing it from £142.2m in 2017 to £98.6m for 2018, even while upping net cash 12 per cent to £61.8m.
Basic earnings per share lost half their value on the lower figures, falling to 5.9p from 12.3p in 2017.
McColl’s proposed dividend of 0.6p per share brought the total 2018 dividend to just 4p, a far cry from 2017’s 10.3p.
Why it’s interesting
The convenience store chain blamed its struggles on key supplier Palmer & Harvey’s entry into administration in November 2017, forcing it to quickly change to its new partner, Morrisons.
McColl’s transitioned 1,300 stores to the new supplier in under nine months, which boss Jonathan Miller said “provides us with a more secure supply chain and a higher quality chilled and fresh offer”.
The chain also bought up 11 new stores and updated 59 existing stores as it continues to grow on the high street.
Calling 2018 McColl’s “annus horribilis”, Edison Investment Research analyst Paul Hickman added that “recovery is apparent” as like-for-like sales ticked up in early 2019.
“Net debt has reduced by a welcome £43.6m to £98.6m, which should result in reduced interest costs for the year ahead (consensus forecasts show little increase in operating profit),” he said.
“Strategy is to continue the transition to a food-led convenience offer, including further food-on-the-go-facilities and neighbourhood facilities like internet collection points.”
What McColl’s said
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Chief executive Jonathan Miller said 2018 was “undoubtedly a challenging year”, but said McColl’s still managed to make progress on strategic initiatives.
He added: “We are a profitable and cash generative business, and our priority for the year ahead is to rebuild operational momentum and we remain confident in delivering our strategic plans.”