Metcash sales up 6.6%, sees “intense” supermarket competition

Posted by Daniel Palmer on 1st December 2009

Metcash, the third largest player in the grocery retail sector in Australia, today reported a 12.3 per cent lift to normalised profit after tax in the first half of its financial year.

The ASX-listed grocery and liquor wholesaler, distributor and marketer, said the result was driven by a 6.6 per cent rise in wholesale sales to $5.6 billion, “despite intense
competition in the grocery sector, lower levels of inflation and price deflation in the produce sector”.

“Metcash has continued to show strong growth in sales and earnings, led by our major division IGA Distribution (IGA>D),” Metcash Chief Executive Officer, Andrew Reitzer, said. “We also continued to reduce our cost of doing business as a percentage of gross profit to 63.98 per cent, with our supply chain improvements enhancing the performance of the Group’s cost of warehousing and distribution.”

Mr Reitzer added that IGA was standing up to heightened competitive tension in the supermarket space.

“IGA>D continues to be the powerhouse of the Metcash business and is performing well against he competition from the two chains (Coles and Woolworths). We have fulfilled our plans to create a national distribution network for our new Fresh business and are delighted that this operation’s revenue is on track to exceed $1 billion this financial year,” he advised.

Wholesale sales of IGA>D rose 9.3 per cent to $3.48 billion, with Earnings Before Interest Tax and Amortisation growing 11.5 per cent to $163.3 million. Comparable store sales grew by 6.4%.

The number of new branded stores rose by 31 during the half year, with 63 openings forecast for the full year, well above previous forecasts.

Six of the 45 former Coles supermarkets now under the Foodworks banner have already started purchasing from IGA>D. The number of outlets will progressively rise to 45 over the rest of the 2010 financial year, the company said.

Metcash added that their private label business continues to grow, with Black & Gold’s sales rising 7 per cent, “while the premium IGA Signature label range is gaining strong acceptance with retailers and consumers”.

Commenting on Metcash’s outlook, Mr Reitzer said that low inflation was the leading headwind to sales growth, but reiterated the company’s guidance for the full year.

“The trading environment is strong, however low price inflation continues to hamper trading opportunities across all of our business pillars.”

“As economic conditions continue to improve, we reiterate our guidance of 7 to 10 per cent growth in pre-abnormal earnings per share for the year to 30 April 2010,” he concluded.