It was ‘one of the most challenging six months the business has ever faced,’ the boss of convenience store group McColls admitted today as he revealed that profits had nearly halved.
Shares in the group plunged nearly 15 per cent to 18p as investors reacted badly to news that pre-tax profits fell 40 per cent to £2.3m in the first half of the retail group’s year.
Jonathan Miller put the fall down to ‘unprecedented supply chain disruption’ following the collapse of wholesaler Palmer & Harvey last November, which left many of its stores struggling to obtain stock.
McColl’s operates around 1,650 UK stores, comprising 1,292 c-stores and 358 newsagents
‘This temporary upheaval has inevitably impacted sales and margin performance in the c.700 stores that were formerly supplied by P&H, and has also had knock-on effects on the rest of the estate,’ Miller said.
The wholesaler’s demise, as well as price cutting, ate into McColl’s like-for-like sales, which slipped 2.7 per cent. However, total sales swelled 19.2 per cent to £602m, driven by the group’s acquisition of 300 Co-op convenience stores in 2017.
Miller insisted that McColl’s troubles will be ironed out in the second half of the year, as it fixes its supply chain, beefs up its food offer, refurbishes the existing store estate and makes further acquisitions.
During the period, McColl’s contracted Morrisons to supply 1,300 of its stores, and said the switch will be completed ahead of schedule. Through Morrisons, the c-store chain has reintroduced the Safeway brand.
‘As the convenience sector continues to grow, we remain confident that our clear strategy will allow us to make further progress and deliver sustainable returns for shareholders,’ Miller said.
Last year, big four grocer Morrisons, which now supplies McColl’s, snapped up the long-lost Safeway brand. Its products have started to re-emerged across the c-stores it supplies
AJ Bell investment director Russ Mould said that, more worrying than McColl’s supply chain disruptions, is the drop in margins due to cutting prices in order to stay competitive.
‘The timing of margin weakness isn’t ideal,’ he said.
‘McColl’s is currently in the process of spending money on refurbishment. It really needs to keep driving up like-for-likes sales in order to support the business.
‘Investors will want reassurance that it is only experiencing short term pains and that the strategic developments in the business will result in longer term gains.’