McColl's hit by Palmer & Harvey woes as sales dip

Convenience store operator McColl's has reported a dip in sales after it was hit by the ­collapse of wholesaler Palmer & Harvey but flagged a rebound over the coming months as it benefits from acquisitions and supply deals.

A McColl's store.
A McColl's store.

Figures yesterday revealed that like-for-like sales for the 11 weeks to 11 February had slipped 2.2 per cent, having been “held back” by sales in stores that were formerly supplied by the failed wholesaler, and together recorded a 3.6 per cent drop in revenues.

In a trading update, the firm – which also uses the RS McColl branding in Scotland – said: “Having experienced some availability issues towards the end of full year 2017 in our c.700 newsagents and smaller convenience stores supplied by Palmer & Harvey, their entry into administration on 28 November 2017 has led to further disruption during the early part of full-year 2018.”

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In the wake of the collapse, McColl’s put contingency plans in place which included entering into a new short-term supply contract with Nisa in December and kicking off its supply partnership with ­Morrisons earlier than planned, in order to stock those stores with tobacco.

The group also released full-year results, which showed the business benefiting from the acquisition of 298 stores from the Co-op last year.

It helped total revenues jump 19.1 per cent to £1.1 billion for the full year to 26 November, though overall like-for-like sales were up by just 0.1 per cent. Annual pre-tax profits rose to £18.4 million from £17.7m the year before.

McColl’s chief executive Jonathan Miller told investors: “We have delivered a strong financial performance with a step-up in sales and profitability propelled by our acquisition of 298 convenience stores, and by surpassing £1bn in annual revenues for the first time we have demonstrated that this is now a business of real scale.

“Continuing this momentum, this year we will significantly enhance our customer offer as we transition supply in over 1,300 stores to Morrisons and exclusively launch hundreds of new Safeway-branded products at McColl’s.”

The firm is also planning to finish refurbishing 100 locations as part of its “refresh programme” this year and aims to buy up around 20 additional stores. McColl’s said it was braced for a year of “significant transition”.

It said: “2018 is a strategically important year for McColl’s as we move to new supply arrangements, and continue to grow and improve the quality of our estate.

“It will be a period of significant transition, however, the actions we are taking will support our strategic objectives and deliver sustainable growth in the years ahead.”

Analysts at Numis Securities, which has an “add” recommendation on the shares, said: “McColl’s FY17 results showed strong growth, albeit slightly below consensus forecasts, backed by the successful Co-op integration.

“The group has moved quickly to tackle the disruption caused by the demise of Palmer & Harvey, but this has affected life-for-like trading in early FY18. We reflect this in a downgrade to our FY18 PBT [profit before tax] forecast but this still shows strong growth year-on-year and we view the medium-term outlook as robust.”