Annual like for like (lfl) sales at McColl’s have fallen by 1.4% as the c-store chain continues to navigate its way through the “significant supply chain disruption” caused by the collapse of Palmer and Harvey.
Shares in the company lost more than a quarter of their value after the group issued a profit warning this morning (Monday), blaming lower-than-expected conversion of sales to profit, transitional challenges, and difficult trading conditions.
However, total LFL sales - which includes sales of fuel, lottery, mobile phone top up and travel tickets - were flat at 0.0% in the final quarter, supported by a strong performance in tobacco, the results for the year to 25 November showed.
Challenging trading conditions and a stronger performance in tobacco, relative to other categories, also resulted in a lower conversion of sales to profit than anticipated, with the group now expecting adjusted EBITDA for FY18 to be around £35m.
“In the last 12 months, following the collapse of Palmer & Harvey, we have experienced significant supply chain disruption and have needed to accelerate the rollout of Morrisons supply to 1,300 of our stores,” McColls said in a trading statement.
The accelerated rollout had also led to a “a few teething issues” with availability of the Safeway brand in stores.
“The speed of this transition has created significant challenges and severely disrupted our plans for the launch of Safeway. We are extremely grateful for Morrisons’ support during this period, and whilst the transition is now complete, we are continuing to experience a number of challenges,” the company added.
“We are working together to address these issues and to develop an optimal range and promotional offer for the future.”
The group has completed 59 convenience store refreshes in the year, delivering average sales uplifts above 5%, and acquired 11 new convenience stores.
A further 66 under-performing newsagents and smaller convenience stores have also been removed in the year, as the group continued its “estate optimisation programme.”
Further sale and leaseback transactions completed in Q4 generated full-year cash proceeds of £25m and significant profits on disposal, while net debt was reduced to around £100m.
Managing cost pressures, particularly increases in the National Living Wage, would continue to be critical in the coming year, it added.
Chief executive Jonathan Miller said: “2018 has been a very difficult year for the business, marked by unprecedented supply chain disruption and ongoing challenges.
“Looking ahead, we expect competition in the grocery retail sector to remain intense and we face into significant cost pressures.
“Important to our future success will be continuing to develop our partnership with Morrisons, alongside our plans to enhance our neighbourhood convenience offer by improving the quality of our estate and our overall customer experience.”