Covid-19 weighs on margins at McColl's

McColl’s Retail Group said on Thursday that annual earnings would come in below last year’s, despite revenues hitting £1.25bn, after the Covid-19 pandemic weighed on margins.

Grocers and convenience stores have seen demand boom in 2020, as lockdown measures closed non-essential shops and restricted travel. But costs have also risen across the sector.

McColl’s – which has around 1,300 managed convenience stores and newsagents – said total revenues rose 2.3% over the 53 weeks to 29 November. The rise reflected “strong demand” since the onset of the pandemic, partly offset by planned shop closures as part of a store optimisation programme. Like-for-like sales spiked 12.0%, against flat sales a year previously.

However, changes in shopping patterns and a subsequent change in product mix weighed on margins. Adjusted earnings before interest, tax, depreciation and amortisation are expected to come in between £29m and £30m pre IFRS 16, compared to £32.1m in 2019.

Jonathan Miller, chief executive, said: “Since the onset of the pandemic, we have seen strong demand driven by our customer offer and the positioning of our stores in key neighbourhood locations. At the same time, we have faced significant Covid-19 costs and our operating margins have been reduced.

“Despite the challenges of 2020, the pandemic has reinforced our confidence in our ongoing strategic change programme. The importance of neighbourhood stores has never been greater.”

Looking ahead, the chain expects underlying revenue growth to moderate and the sales mix to normalise over the course of the current financial year.

As at 1245 GMT, shares in McColl’s were off 17% at 25.90p.

McColl’s results are scheduled to be published in March 2021.