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McColl's in talks with suppliers after Palmer & Harvey collapse, reports record annual revenue

Published: 03:48 04 Dec 2017 EST

tobacco
P&H, the UK's largest tobacco supplier, went into administration last week

McColl’s Retail Group PLC (LON:MCLS) said it has contingency plans in place to deal with the fallout from the collapse of Palmer & Harvey as it reported record annual revenue of more than £1bn.

The retailer is in talks with its suppliers and manufacturers to ensure continued supplies to its stores, including 700 newsagents and smaller convenience stores, previously supplied by P&H.

READ: McColl's Retail rockets as it chooses Morrison's as key supplier

P&H - the UK’s biggest tobacco distributor, which also delivers food and drink to supermarkets and convenience stores – went into administration last week. The news sparked worries about the possibility of tobacco shortages across the UK.

"Our priority is to minimise any potential impact on customers,” McColl’s said in a trading update for the fourth quarter.

McColl’s reported a 28.9% increase in fourth quarter revenue, boosted by the acquisition of 298 convenience stores from the Co-operative Group in mid-July.

Like-for-like sales, however, dropped 1.1% during the period due to a decline in traditional categories and unfavourable weather.

Full year like-for-like sales rose 0.1% with a 0.1% rise in convenience store sales and a 0.2% dip in sales at newsagents.

Full year guidance unchanged 

The company, which has an estate of 1,611 stores, left its full year guidance unchanged.

"For the first time the business has achieved annual revenues of more than £1bn, boosted by our transformational acquisition of 298 high quality convenience stores last year, demonstrating that this is now a business of real scale,” said chief executive Jonathan Miller.

"McColl's is well positioned to continue to take advantage of the growing convenience market, with clear opportunities to enhance organic growth across our estate, as well as continued expansion through our acquisition programme.”

Miller said in the year ahead, the company will focus on improving its customer offering in more than 1,300 stores through its wholesale partnership with Morrisons. Under the deal, announced in August, McColls will be exclusively supplied with around 400 Safeway own-brand products from January 2018.

Liberum remains positive on the stock

Liberum left its 'buy' rating and target price of 300p unchanged, saying:  "There are short-term risks relating to Palmer and Harvey's fall into administration, which need to be watched, but we believe McColl's is better placed than many of its competitors to deal with the situation."

Fourth quarter like-for-like sales fell but this was expected and the company has made strategic progress, Liberum added. The broker said the successful integration of the 298 Co-op stores is a "key positive, driving a step-change in near-term financials", while the upcoming supply contract with Morrisons "should be seen in a very positive light and supports upside risk to our outer year forecasts".

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