A leading retail analyst has said that UK convenience retailer McColls still has "much to do" to get back on track following a challenging 2018, after the business posted slight revenue growth in the first half of this year.
Greg Lawless of Shore Capital was commenting as McColls posted a 0.1% increase in revenue in the 26 weeks to 26 May, to £611.1 million (€678.9 million), while like-for-like sales were up 1.0%.
Last December, the business issued a profit warning ahead, amidst difficult trading conditions and supply challenges following the administration of the Palmer & Harvey wholesale business.
'Rebuilding Momentum'
"In our view, FY2019 is another year of rebuilding momentum after the challenges of 2018," Lawless wrote in a briefing note.
"The company continues to make operational progress but there remains much to do, and we note, in particular the outlook statement as the company and the food retail sector cycles the tough comparatives from last summer."
Elsewhere, Thomas Brereton of Global Data noted that while McColls is on the "right path to recovery", it is perhaps getting there too slowly.
"While McColl’s has identified areas it must improve in – such as increasing its sales mix of food and alcohol from its current low base of 35% – it has been sluggish in reducing its dependency on tobacco, news and confectionery," he said.
"While it has made steps to rectify this problem – such as agreeing for e-cigarette brand Juul to supply all its 1,300 stores from start of June – it desperately needs to increase its sales density (currently c. 560 £/sq ft) to compete with the larger multiples."
EBITDA Decline
McColls posted adjusted EBITDA of £13 million for the period, down from the £16 million it reported last year, while profit before tax was £0.2 million, down from £2.3 million a year earlier.
The company said that it is undertaking work to improve its gross margins, following a supply chain transition in 2018, while a focus on operational standards is helping to improve customer satisfaction ratings.
It has 'refreshed' 17 convenience stores in its estate, while also divesting 41 underperforming stores.
It has also appointed former Sainsbury's executive Richard Crampton to the role of chief commercial officer, effective autumn 2019.
'Stabilise The Business'
"The key priorities that we outlined for this year were to stabilise the business and to refocus on retail execution following a challenging 2018," said Jonathan Miller, McColls chief executive. "We have made good progress on both of these fronts whilst also maintaining strong capital discipline, reducing debt whilst sustaining appropriate levels of investment."
Miller said that he was "encouraged" by the business' performance, but it still has "more work to do" in the second half of the year.
"The market remains highly competitive, with challenging trading conditions, given the unseasonable weather and uncertain economic climate," he said. "Despite this, we expect to be broadly in line with expectations for the full year and we are confident that our strategy, combined with the cash generative and profitable nature of our business, will deliver sustainable returns for shareholders in the long term."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
