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23 Mar 2021 | 12:44

Profits slide at McColl's despite Covid sales boost

(Sharecast News) - McColl's Retail Group reported a slide in annual earnings on Tuesday, despite a surge in demand caused by the Covid-19 pandemic. The convenience store retailer reported a 3% rise in sales to £1.3bn in the year to 29 November 2020, while like-for-like sales rose 12% against a flat performance in 2019.

McColl's said the sales growth reflected strong demand it had seen since at the start of the pandemic, with sales of alcohol, fresh food and tobacco proving especially strong.

However, that was partly offset by divestments and store closures - part of a store optimisation programme under which McColl's is refocusing on larger, food-led outlets - while the gross margin eased to 23.9% from 25.9%. McColl's said customers had moved away from impulse purchases to lower-margin products, including multi-buys and value items. Costs also rose in response to the pandemic.

Adjusted earnings before interest, tax, depreciation and amortisation fell 9% to £29.1m, while gross profits were down 5% at £300.9m.

The statutory loss before tax was £5.3m compared to £98.6m a year previously, when it was hit by impairment charges.

Looking to the current year, McColl's said underlying sales rose 8.8% in the 15 weeks to 14 March 2021 but the margin remained under pressure. "As lockdown restrictions begin to ease, we expect our sales mix to normalise with higher purchase of impulse products and a progressive reversion towards pre-pandemic margins," it noted.

"However, we remain in a highly uncertain environment, with little visibility on macroeconomic and consumer trends for the remainder of 2021."

Chief executive Jonathan Miller said: "Despite the operational challenges of the pandemic, we have made good progress on our customer-focused strategic change programme.

"Looking ahead to 2021, while uncertainties and restrictions remain, there is no doubt the strategic importance of neighbourhood stores has never been greater, and we are well positioned to deliver for customers and shareholders."

McColl's, which recently extended its wholesale partnership with Wm Morrison for a further three years until 2027, has more than 1,200 managed convenience stores and newsagents trading under the McColl's and Morrisons Daily brands, and as RS McColl in Scotland.

As at 1230 GMT shares in McColl's were off 5% at 30.48p.

Peel Hunt, which has a 'buy' rating on the stock and a target price of 50.0p, said: "The shares seem cheap if a route to stability, let alone growth, could be mapped out. We believe there is value here, but it may take time to emerge."
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