Metcash Lifts Dividend After "Unprecedented" Sales Surge




The country’s third retail force, Metcash has given shareholders a nice pre-Christmas reward with a 33% lift in interim payout after the supermarket, liquor and hardware group revealed one of its strongest-ever half-yearly results, with the company’s underlying earnings surging 43% in the six months to October 31.

Group sales jumped 12.2% (a rise the company described as “unprecedented”) to $7.1 billion for the six months - an improvement that has continued into the first six weeks of the current half.

Shareholders will benefit with the interim rising to 8 cents a share from the six cents paid a year ago.

Shares in the firm surged on the ASX 200 ending up more than 10% a more-than-two-year high of $3.55.

Metcash said the improvement was driven by a collective move by Australians to preference local independent IGA stores in the COVID-19 pandemic and lockdowns.

Underlying profit after tax increased by 43% to $129.6 million, largely fuelled by the higher volume of sales during the COVID-19 affected period.

At a statutory level, Metcash’s earnings jumped 182% to $125.1 million, as the company incurred a $151 million loss in the prior corresponding half due to a swathe of write downs.

Group underlying earnings before interest and tax (EBIT) jumped 30.4% to $203 million with strong earnings in all areas of the company’s operations, especially in food where "a significant increase in EBIT was underpinned by higher sales volumes and an improvement in the contribution from joint venture stores.”

"The strong growth was achieved despite 1H21 including no sales to Drakes in South Australia2 and only three and a half months of sales to 7-Eleven following the ending of their previous supply agreement in mid-August 2020,” directors said.

In Liquor, strong earnings growth was underpinned by elevated demand in the IBA banner group, which more than offset the adverse impact of COVID-19 trading restrictions on ‘on-premise’ customers.

In Hardware, strong earnings growth was driven by a significant increase in higher margin DIY sales, as well as a return to growth in Trade sales and the contribution from acquisitions.

Directors said the company “has had a strong start to the second half with sales momentum continuing” in all areas of operations in the first five weeks of the second half

"Subject to an adverse change in government restrictions, it is expected that trading will benefit from more people travelling domestically over the Christmas and New Year period and our retail network’s strong representation in regional/rural areas.

"The second half will cycle the negative impact of bushfires in 2H20, and it also includes the cycling of significantly higher sales volumes in Food and Hardware in March and April 2020.

In Food, sales in the first five weeks of the second half are up 2.4% (+12.1% ex 7-Eleven impact), with Supermarket sales up 12.1% (+8.4% ex-tobacco). "Sales in 2H21 will be negatively impacted by the previous supply agreement with 7-Eleven ending in August 2020,” directors pointed out.

In Liquor, sales in the first five weeks of the second half are up 16.9% "with continued elevated demand in the IBA retail network more than offsetting the adverse impact of COVID-19 restrictions on ‘on-premise’ customers.”

‘On-premise’ customers have started to recover in states with easing restrictions. Sales to the IBA retail banner group over the same five weeks are up 22.6%.

In Hardware, sales in the first five weeks of second half are up 25.3% (+19.3% ex-the Total Tools acquisition earlier in the year) "with sustained strong demand in DIY and Trade sales continuing to track positively.”

"The second half will include a full six months of trading by Total Tools, including the four stores acquired and anticipated acquisition of a majority interest in a further eight independent stores,” directors said.

Metcash CEO, Jeff Adams said in Monday’s statement: “It has been a standout first half for Metcash, with unprecedented sales growth underpinning a significant lift in earnings and cash generation.

“I am pleased to report that the Group has had a good start to the second half, with strong sales momentum continuing in all pillars in the first five weeks of trading. We are also expecting strong trading over the Christmas and New Year period.

“We are well positioned to service the expected strong demand, particularly in South Australia where earlier this month we opened our new purpose-built distribution centre. The new facility improves the competitiveness of our retailers in South Australia through providing them with a wider range of products and increased efficiencies.

“The Group’s strong underlying cash flows have strengthened our financial position,” Mr Adams said.