Metcash Looking (and Selling Lots of) the Goods




A confident outlook for the rest of 2022-23 from Metcash, the country’s 4th-biggest supermarkets group, if the tick-up in interim dividend and continuation of the solid sales growth seen in the first six months of the year are any indication.

Metcash services the IGA chain of small to medium supermarkets, Mitre 10 hardware outlets, a series of liquor stories through its huge distribution business and Total Tools stores.

Directors lifted the interim to 11.5 cents a share, up 9.5% as they told the market Monday that the opening weeks of the second half had seen sales up 6.2% after reporting an 8.2% rise in sales for the half year.

Group reported revenue (which excludes charge-through sales) rose 8.2% to $7.7 billion from $7.2 billion in the first half of 2021-2 which Metcash said reflected growth in all its businesses "despite cycling the impact of extensive lockdowns” a year earlier.

"This was underpinned by continued strong demand, inflation and acquisitions,” directors said on Monday who also pointed to the continuing ‘shop local’ trend among consumers still a touch wary about bigger shopping centres.

Investors bid the shares up 0.2% to $4.24 after the results and higher dividend.

Metcash said group underlying profit after tax increased 9.1% to $159.9 million while statutory profit after tax was lower at just over $125 million because of $34.2 million in after-tax significant items, including put option valuation adjustments of $21.3 million and Project Horizon implementation costs of $12.8 million.

Group underlying EBIT was up 10.3% to $255.1 million, "reflecting the robust sales performance and success of recent strategic acquisitions, partly offset by increased costs (fuel, freight and labour),” directors said in the earnings release.

"There was some improvement to the extensive supply chain challenges experienced in FY22, and our operations again exhibited resilience and flexibility which, together with our strategic investment in inventory, ensured our networks remained well stocked. All pillars continued to perform well, underpinned by robust demand and sales volumes. In the Liquor pillar, growth accelerated, which was a standout for the half,” CEO Doug Jones said in the earnings releases.

“Keeping on-shelf prices highly competitive supported strong sales volumes in all pillars. As outlined at our recent Investor Day, we are prioritising volume growth, our core value driver, to keep our retailers competitive, particularly whilst facing their own cost pressures.

“Our independent retail networks performed well. Overall network health continued to strengthen, and retailers are operating with a high level of confidence and reinvesting to further improve the quality of their stores and offer.

“The success of our investments in Total Tools and IHG, and significant growth in the underlying performance of the Hardware pillar, has led to a rebalancing of the Group’s earnings profile with Hardware now the largest contributor.

“We now have ~160 company-owned or joint venture stores in our hardware network that together are delivering significant sales growth.

“Looking forward, the business remains well placed with good growth opportunities, a strong financial position and strategic initiatives that are delivering significant benefits.

"We are also accelerating targeted growth and value creation initiatives in areas such as loyalty, digital and eCommerce, data, network optimisation and development, as well as addressing legacy technology risks through Project Horizon”, Mr Jones said.

Metcash said its food business (IGA) “continued to perform well, delivering EBIT growth of 3.2% despite cycling the impact of extensive lockdowns in New South Wales and Victoria. The lockdowns led to demand for Food being elevated in the prior corresponding half."

"In Hardware, EBIT increased 17.9% with growth in both IHG and Total Tools. Underlying demand in the Trade and DIY segments remained robust, and there was an increase in the contribution from majority-owned company and joint venture stores in IHG and Total Tools."

"In Liquor, EBIT increased 11.3% reflecting the contribution from strong sales to retail customers, and a recovery in sales to on-premise customers post the lockdowns and easing of other COVID-related restrictions,” Metcash said in Monday’s report.