Earnings results for supermarket wholesaler Metcash, released on Monday, will provide an update on the pace of inflation currently running through the food and grocery sector which some fear has accelerated since Woolworths and Coles reported an inflation breakout in the March quarter.
Woolworths in May revealed that food inflation had grown by 2.7 per cent for the third quarter while Coles had witnessed inflation of 3.3 per cent, but since then food inflation has quickened – pushed by higher energy prices and commodity prices, poor weather as well as labour shortages – and Metcash is likely to show just how much it has accelerated since May.
More broadly, analysts will also be picking over the Metcash full-year results to gain further insight into the health of the housing and construction market via the performance of Metcash’s hardware wholesale business which takes in retail banner groups Mitre 10 and Total Tools.
Metcash’s wholesale supermarket customers include the IGA, Foodland and Ritchies banners. It will be the first results presentation for Metcash’s new chief executive Doug Jones.
The market is expecting Metcash, which has wholesale operations across supermarkets, liquor and hardware, to report a 3 per cent lift in sales to $16.8bn, earnings of about $451m, up 11 per cent, and a 7 per cent rise in full-year net profit to $256m.
As Covid-19 restrictions have eased and consumers have ventured out again they are likely to have also done their supermarket shopping outside their local neighbourhoods – which Metcash benefited from during the Covid-19 lockdowns – with this unwinding of Covid-19 shopping patterns expected to have continued.
How Metcash and its independent supermarkets, liquor outlets and hardware stores have dealt with rising inflation will also be a feature of the results.
“The focus of the result will be on leverage to grocery inflation and the demand backdrop as local shopping unwinds,” said JPMorgan analyst Bryan Raymond.
“The pace of grocery inflation has stepped up further since Woolworths and Coles reported third quarter results in May. Supplier feedback indicates that independents (supermarkets) continued to either hold or gain share over the second half of 2022 despite cycling large market share gains in the first half of 2021.”
Mr Raymond said a focus going forward would be how Metcash’s price-match programs are able to drive improvement in price perception for its stores as value becomes a greater consideration for shoppers.
“We note that Metcash’s private label offer is less sophisticated than Aldi, Woolworths and Coles.”
In terms of its hardware wholesale business, product and labour shortages could impact the outlook as housing slows.
JPMorgan expects momentum for its trade (professional) hardware turnover to have continued throughout the second half of 2022, with Mitre 10 revenue growth of 6.7 per cent, while its majority-owned Total Tools arm is set to deliver second half earnings of $32m, broadly in line with earnings of $33m for the first half.
Extracted from The Australian