McColl's swings to loss before tax as revenue falls

McColl’s Retail Group swung to a loss before tax after a 1% fall in total revenue to £604.8m in its first half, it said on Thursday, reflecting store closures and lower services revenue due to the temporary withdrawal of scratch cards, offset by stronger demand since the outbreak of Covid-19 in the UK.

The London-listed convenience retailer said total like-for-like sales were up 8.3% for the 26 weeks ended 24 May, compared to 1% a year earlier, with growth accelerating in the second quarter.

Its gross margin fell slightly to 24.9%, from 25.4%, which the board said was primarily impacted by mix impacts as consumers moved away from impulse purchases to lower-margin take home products, as well as multi-buys and value items.

The margin was also affected by strategic investments in price in some key product areas.

McColl’s gross profit fell slightly to £150.7m from £155m, due to lower total revenue and gross margin, while adjusted EBITDA came in at £28m for the period.

On a consistent, pre-IFRS 16 basis, adjusted EBITDA was slightly higher at £13.1m, from £13m a year earlier, with gross margin dilution and additional Covid-19 related costs “broadly offset” by underlying cost control and business rates relief in the period.

The company made an adjusted loss before tax of £0.5m, swinging from a profit of £0.5m in the first half of the 2019 financial year, with its statutory loss before tax totalling £1.3m, compared to a profit of £0.2m a year earlier.

Basic losses per share were 0.9p, compared to earnings of 1.2p, while adjusted lossed per share were 0.2p, swinging from earnings of 0.3p.

Net debt ended the period at £284.3m, while on a pre-IFRS 16 basis, net debt reduced to £82.0m from £89.7m year-on-year.

“The business has responded quickly [to Covid-19] to keep the neighbourhood communities we serve supplied with the food, goods and services they need,” said chief executive officer Jonathan Miller.

“We have seen an extraordinary change since the onset of the crisis.

“Strong demand, reaching double digit like-for-like sales in recent months, has been accompanied by a significant shift in the pattern of trade.”

Miller noted that food grocery and alcohol sales had been particularly strong, in line with its longer-term strategy to grow those categories as part of its total sales mix.

Meanwhile, customers had been spending less on impulse, and buying more multipack products.

“Fundamentally, the pandemic has served to reinforce our conviction in our ongoing strategic change programme to serve our customers with a modern, local convenience offer with better meal solutions, fresh groceries and alcohol.

“What is clear is that the strategic importance of our neighbourhood stores and convenience retail to local communities has never been greater and, through implementing our strategy and improving our customer proposition, I remain confident in our long-term prospects.”

At 0944 BST, shares in McColl’s Retail Group were down 14.88% at 34.9p.