Metcash shares have stumbled after the wholesaler lifted first-half profit three per cent to $95.8 million but flagged more tough times for supermarkets and the likely impact on its hardware business of a slowing property market.
Chief executive Jeff Adams credited the IGA and Foodland supplier’s 2.2 per cent in sales revenue for the six months to October 31 to its food division and hardware business.
But Metcash will lose a major chunk of its South Australian business when Drakes Supermarkets’ contract expires at the end of the current financial year, and Mr Adams said Monday that there was no let up in the pressure on the sector.
Vertium Asset Management portfolio manager Daniel Mueller said Metcash – already up against homegrown giants Coles and Woolworths, as well as Aldi – was subject to fierce competition in the supermarket sector.
“Coles is now a stand-alone entity, and they (Metcash) still have the potential for (German retailer) Kaufland to come into the market in the next year or two,” Mr Mueller told AAP.
Metcash made a $352 million impairment in its last full-year results following Drakes’ decision not to renew its contract.
But the company reiterated on Monday that it has “long-term” supply agreements in place with the majority of its Foodland retailers in South Australia.
Mr Mueller said the weaker recent performance of Wesfarmers-owned rival Bunnings suggested Metcash’s Home Timber and Hardware unit will also face tougher conditions.
Metcash acknowledged a likely dip over the full financial year, but Mr Adams said the business would still perform well.
“We expect some further softening in new construction and DIY activity over the balance of FY19, but to levels that are still above historical averages,” Mr Adams said.
Shares in Metcash were down 21.5 cents, or 7.8 per cent, to $2.555 at 1245 AEDT.
* Net profit up 3.0pct cent to $95.8m
* Revenue up 2.2pct $6.19b
* Interim dividend up 0.5 cents to 6.5 cents, fully franked