The Metcash Limited (ASX: MTS) share price will be on watch after revealing a strong trading update for FY22 at its AGM.
Metcash is the business that supplies IGAs across the country, several independent liquor businesses like Cellarbrations and the Bottle-O, and it owns Mitre 10 and 85% of Total Tools.
Metcash FY22 trading update
The company said that trading has continued to be strong in all pillars and well above the pre-COVID levels in FY20.
There has been a number of shifts by the consumer that is helping demand. Metcash pointed to more local neighbourhood shopping, movement from cities to regional areas, more eating at home, home consumption of liquor rather than on-premise and a high level of home renovation and DIY activity.
The improved competitiveness of its store networks is being supported by its MFuture programs. That involves finding growth for the business, as well as reducing costs.
MFuture initiatives have been store upgrade programs, rolling out new store formats, expanding its private and exclusive label ranges and accelerating its digital plans.
FY22 growth
Metcash told investors how it has performed in the first 16 weeks of FY22 to 15 August 2021.
In the food division, supermarket sales increased by 12.9% compared to FY20 and growth was 17.2% excluding the impact of losing the supply of Drakes. However, compared to FY21, supermarket sales were 1.8% lower.
Total food sales were up 3.1% on FY20, though down 7.4% on FY21.
In liquor, sales were up 23.1% compared to FY20 and 9.5% higher than the same period in FY21.
Total hardware sales were up 37.8% on FY20, and 16.3% higher than the same period in FY21. Metcash said that trade sales continued to be strong, boosted by a high level of residential construction and renovations activity. This more than offset a decline in DIY demand compared to last year, though it’s still stronger than DIY demand in FY20. However, restrictions have led to construction slowdowns and DIY sales in states impacted by COVID-19.
Summary thoughts on Metcash and the share price
Metcash is a good business with useful diversification across multiple areas. The food earnings are defensive and it’s making great progress with hardware. If I were focused on dividends, I think Metcash would be a solid longer-term pick. I would prefer it to Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL).
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