Convenience store chain McColl’s slashes dividend after profit fall as collapse of supplier Palmer & Harvey continues to weigh it down
- McColl’s pre-tax profits declined 57% to £7.9m for the year to end of November
- It slashed its full year dividend to 3.40p per share from 6.90p
- Like-for-like sales have recovered in the new year, up 1.2% in the first quarter
Convenience store chain McColl’s said it is still suffering from the collapse of supplier Palmer & Harvey as it reported falling profits and sales and slashed its dividend by more than half.
McColl’s, which has around 1,600 convenience stores and newsagents around the UK, also said sales may fall further in April and May if the UK leaves the European Union without a deal as supply chains are disrupted.
The expected weak annual results follow two profit warnings and an 80 per cent slide in the small cap firm’s share price in a year. But today, shares rose 13 per cent to 57.4p.
McColl’s said pre-tax profits for the financial year to the end of November declined 57 per cent
McColl’s said pre-tax profits for the financial year to the end of November declined 57 per cent to £7.9million from £18.4million the year earlier, while like-for-like sales fell 1.4 per cent.
Total revenue, however, increased 8.1 per cent to £1.24billion, thanks to the acquisition of nearly 300 convenience stores in 2017.
Wholesaler Palmer & Harvey collapsed in November 2017, leaving many of McColl’s stores struggling to obtain stock. Meanwhile, Mccoll’s signed a deal with supermarket Morrisons to supply 1,300 of its stores.
The company slashed its full year dividend to 3.40p per share from 6.90p the previous year.
However, it said like-for-like sales have recovered in the new year, having risen 1.2 per cent in the 11 weeks ended February 10. Total sales also increased 0.4 per cent.
McColl’s said that in case of a no-deal Brexit, it expects sales to fall 11 per cent in April and May. However, it does not expect Brexit to have a material impact on the business if the UK manages to strike a divorce deal with the bloc.
McColl’s chief executive Jonathan Miller said 2018 was ‘undoubtedly a challenging year’.
‘We completed the roll-out of 1,300 stores to Morrisons supply in less than nine months, which represents a considerable achievement and provides us with a more secure supply chain and a higher quality chilled and fresh offer,’ he said.
‘We also continued to invest in our estate, with 59 convenience store refreshes completed in the year and 11 new stores acquired.’
McColl’s expects to acquire a small number of new convenience stores and refurbish up to 30 this year. The company continues to expect that adjusted earnings for the full year will be a ‘modest improvement’ to the year before.
Mccoll’s signed a deal with supermarket Morrisons to supply 1,300 of its stores.
Russ Mould at AJ Bell said: ‘The convenience store operator will be glad that its 2018 results are finally published as it will allow the business to move on from what was a terrible year.
‘McColl’s looks to be doing the right thing. Its net debt is coming down rapidly, it is investing in its business to keep stores looking fresh, and it is getting rid of underperforming outlets.
‘Furthermore, it is boosting the number of stores offering hot food and coffee and has added Subway counters to 23 sites.
‘Unfortunately many of its rivals are also strengthening their proposition, meaning that 2019 is not going to be a breeze for McColl’s. It needs to accelerate a shift into higher margin products to give its earnings some sort of cushion if new problems emerge. At the moment its operating profit margins are wafer-thin, leaving no room for error.’