The Metcash (ASX: MTS) share price is up more than 1% after reporting its 2020 half year result.

is a leading wholesale distributor of supermarket products and the owner of popular retail brands like IGA, Mitre 10 and Foodland. In liquor it owns The Bottle-O, Cellarbrations and Duncans.

Metcash’s 2020 Half Year Result

Earlier this week the IGA supplier and hardware business announced a large impairment because of the loss of its 7-Eleven contract.

This was the main reason that Metcash reported a loss after tax of $151.6 million, which was down from a reported profit (pre AASB16) of $95.8 million last year.

Underlying profit fell by 4.6% to $95.7 million with the contribution from resolution of onerous lease obligations being around $10 million higher than the FY19 first half.

Reported group revenue, which excludes charge-through sales, increased 1.6% to $6.3 billion. Including charge-through sales, group revenue increased by 0.5% to $7.21 billion.

Sales growth in the Food and Liquor segments was partly offset by a decline in Hardware sales. Total Food sales (including charge-through sales) increased 1.2% with Supermarkets wholesale sales excluding tobacco being positive for the first time since FY12 after adjusting for the impact of ceasing supply to Drakes.

Total underlying EBIT (click here to learn what EBIT means) dropped by $8.4 million to $149.7 million. Food EBIT fell $7.8 million to $85.2 million because of the onerous leases, Liquor EBIT grew $0.5 million to $29.6 million and Hardware EBIT fell $0.5 million because of the construction downturn.

Metcash Dividend

Metcash has declared an dividend of 6 cents per share. This was a 7.7% decline compared to the 6.5 cents per share dividend paid a year ago.

Metcash Management Comments

Metcash CEO Jeff Adams said: “The improvement in Supermarkets was broad-based with all states reporting an increase in the sales trajectory. Western Australia, our most challenging state, improved significantly with sales broadly in-line with the prior corresponding half after many years of decline. 

It was also pleasing to see ‘like for like’ sales in our IGA retail network return to growth. We are continuing to work closely with our retailers and have made progress with implementing and accelerating initiatives under the MFuture program

Retailer confidence is improving and this is driving further investment to improve the quality and competitiveness of the IGA store network.”

Outlook

Growth in Supermarkets wholesale sales excluding tobacco has continued in the first five weeks of the second half excluding Drakes. The total supermarket sales will be negatively impacted by the loss of Drakes.

Growth is expected in Liquor for the rest of the year thanks to the premiumisation trend.

Trade sales in Hardware are expected to continue to be impacted by the construction slowdown. However, non-trade sales are expected to be less resilient. Over the longer-term Hardware is expected to grow thanks to population growth and an undersupply of housing.

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At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.