Shares in convenience stores operator McColl’s Retail (MCLS) dipped 0.1% to 31.7p after the retailer reported a plunge in annual adjusted pre-tax profits and passed the dividend despite seeing a pandemic-driven like-for-like sales leap last year.
The profits drop reflected the impact of lower margins and ongoing Covid-related costs, though McColl’s has extended its wholesale partnership with Morrisons (MRW) for a further three years and also reported a drop in year-end net debt from £94.1 million to £89.6 million.
COVID SALES WINDFALL
For the 53 weeks ended 29 November 2020, the designated essential retailer’s total revenue rose 3.2% to £1.258 billion and McColl’s generated 12% like-for-like sales growth as the pandemic kept people at home and drove increased footfall to its neighbourhood stores.
The operator of McColl’s and Morrisons Daily branded convenience stores witnessed strong demand for fresh food, booze and tobacco, though the adjusted pre-tax profits plunged from £7.4 million to £1.1 million as gross margins declined by 200 basis points to 23.9%.
The company cut prices to stay competitive and also saw customers shift away from higher margin impulse purchases such as snacks and soft drinks to lower margin take home products, multi-buys and value items.
McColl’s has extended its wholesale partnership with Morrisons for a further three years to 2027, which will see it convert 300 of its stores to the Morrisons Daily format, marking a significant milestone in its strategic goal of becoming a food-led convenience retailer.
REMAINING CAUTIOUS
As for current trading, McColl’s said like-for-like sales in the 15 weeks to 14 March grew 8.8%, though the company remains cautious on the year ahead.
Facing tougher like-for-like sales comparatives, McColl’s also warned ‘we remain in a highly uncertain environment, with little visibility on macroeconomic and consumer trends for the remainder of 2021’.
