Strong customer demand during the coronavirus pandemic led to double-digit like-for-like sales growth at McColl’s last year, but consumer shift to lower margin products and investment in price hit profits.
Total sales for the 53 weeks to 29 November were up 3.2% to £1.26bn, reflecting strong demand since the onset of the Covid-19 pandemic, partly offset by divestments and store closures as it continued its store optimisation programme.
Total like-for-like sales jumped 12% – compared to flat in the previous financial year – driven by strong performance in alcohol, fresh food and tobacco.
However, this category growth came at the expense of impulse products (crisps and snacks, soft drinks, confectionery) and food-to-go.
Gross profit fell to £300.9m from £315.7m, reflecting this changing mix of sales during lockdown, as customers moved away from higher-margin impulse purchases to lower margin take home products as well as multibuys and value items.
In addition, McColl’s said it took the active decision to selectively invest in essential food pricing to maintain good value to existing customers and build loyalty amongst the incremental shoppers in our stores.
Adjusted EBITDA for the period was £29.1m, a fall of 9.3% over the same period last year, also hampered by ongoing net Covid-19 costs of £5.9m.
Covid costs were mitigated by £9.4m of government support, relating to business rates relief and use of the Coronavirus Job Retention Scheme for the furlough of its most vulnerable employees.
During the period its wholesale partnership with Morrisons was extended for a further three years to 2027, providing a greater range of products enabling a more comprehensive grocery offer.
McColl’s said the agreement represented a “significant milestone” in McColl’s strategic goal of becoming a food-led convenience retailer “giving even greater access to Morrisons grocery expertise and brand”.
Some 300 Morrisons Daily format sore conversions are planned over the next three years, including the existing 31 Morrisons Daily stores currently in operation.
A total of with 179 stores were closed in 2020 as part of its focus on larger, more profitable, grocery-led stores.
During the year 21 stores were converted to the Morrisons Daily format and it is targeting an optimised estate of 1,150 stores, from 1,265 stores currently.
“However, we remain in a highly uncertain environment, with little visibility on macroeconomic and consumer trends for the remainder of 2021,” it stated.
CEO Jonathan Miller commented: “Over the last 12 months we have seen strong like-for-like sales growth, driven by the positioning of our stores in key neighbourhood locations and our strong customer offer. Despite the operational challenges of the pandemic, we have made good progress on our customer-focused strategic change programme.
“We recently reached a key strategic milestone, announcing a new supply deal with Morrisons, ensuring the continued supply of supermarket quality food across our entire estate for the next six years, supported by a bank facility extension. I am delighted with the opportunity this brings to convert 300 stores to the successful Morrisons Daily format over the next three years. These stores will be particularly well suited to the changing customer dynamics that are resulting from the pandemic.
“The past year has been exceptionally challenging for so many people, and I am incredibly proud of all our colleagues who have been working extremely hard to keep supplying our neighbourhood communities with the food, goods and services they need.”
Since year end, like-for-like sales growth has moderated to 8.8% in the 15 weeks to 14 March 2021.
Gross margin trends are consistent with those experienced in 2020, reflecting a shift in sales to lower-margin take-home products and multipacks as a result of the third national lockdown.
As lockdown restrictions begin to ease, McColl’s said it expected its sales mix to normalise with higher purchases of impulse products and a progressive reversion towards pre-pandemic margins.
Miller added: “Looking ahead to 2021, whilst uncertainties and restrictions remain, there is no doubt that the strategic importance of neighbourhood stores has never been greater, and we are well positioned to deliver for customers and shareholders, as we continue to enhance our convenience offer.”
“We therefore remain cautious on the year ahead, particularly as we start to face tougher like-for-like sales comparatives, and Government support measures roll off as the year progresses. While in the short term the pandemic will impact trading, we will continue to adapt our business to a change in customer demand. Our key strategic priorities will help deliver sustained profitable growth over the coming years.”
McColl’s shares are down 4.8% to 30.5p after the results this morning.
On the markets this morning, the FTSE 100 has opened down 0.3% to 6,706pts.
Fallers so far this morning include SSP Group, down 5.3% to 322p, Science in Sport, down 4% to 58.6p and WH Smith, down 2.6% to 1,774p.
Risers include Glanbia, up 2.6% to €12.43, Imperial Brands, up 1.1% to 1,490p and Ocado, up 1% to 2,080p.
Yesterday in the City
The FTSE 100 started the week edging up 0.2% to 6,726.1pts.
On a generally good day for consumer stocks, major risers included Bakkavor, up 4.3% to 112.4p, PZ Cussons, up 4.3% to 269p, C&C Group, up 3.9% to 293.5p and Hilton Food Group, up 2.9% to 1,060p.
Food-to-go players Greggs and SSP Group were up 2.6% to 2,114p and 2.3% to 340p respectively.
Other risers included AG Barr, up 2.8% to 482.5p, Reckitt Benckiser, up 2.8% to 6,488p, Pets at Home, up 2.7% to 387.4p and Ocado, up 1.9% to 2,060p.
Fallers included WH Smith, down 1.7% to 1,822p, Marks & Spencer, down 1.5% to 152.9p, McColl’s Retail Group, down 1.4% to 32p, Greencore, down 1.3% to 154p and Finsbury Food Group, down 1.3% to 78.5p.