MARKETS SPECTATOR: Metcash profits in the bag

The grocery wholesaler’s shares surged as much as 8.5 per cent after its net profit more than doubled in 2013.

Not all things are gloomy in Australia’s economy, especially if you are Australia’s largest grocery wholesaler with a large liquor business. Metcash said today its profit rocketed 129 per cent to $206 million in the 12 months to April 30 after liquor sales rose by a quarter year-on-year.

The stock today surged as much as 9.4 per cent. At 1414 AEST Metcash shares were up 24.5 cents, or 7.1 per cent, to $3.685, against a 56.20 point, or 1.2 per cent fall in the S&P/ASX200 Index. The Metcash stock is down 2.5 per cent in the last 12 months, compared with a 16 per cent gain in the S&P/ASX200 Index benchmark.

But the impressive bottom line showing is a result of restructuring charges booked in the company’s 2012 financial year. Andrew Reitzer, Metcash’s chief executive, said the retail sector is beset by low consumer confidence as competitors engage in a discount war that has led to lower prices. Good news for consumers but not for Metcash’s IAG and its competitors Woolworths and Coles.

Metcash’s food and grocery sales dropped 2.3 per cent in 2013 to $9.1 billion, from $9.3 billion in 2012. Earnings before interest, tax, depreciation and amortization in the same division fell 5 per cent this year to $378 million from $398 million last year.

Metcash CEO Ritzer says the company’s food and grocery market share in 2013 declined year on year.

Ian Morrice, Ritzer’s replacement, is vowing to change the decline in grocery and food market share. That may be difficult without substantial investment in new stores and probably aggressive discounting that could lower Metcash’s net profit.

Coles and Woolworths’ combined market share are between 60 per cent, according to industry estimates, and as much as 80 per cent according to maverick MP Bob Katter. Unless there is regulatory pressure, Metcash will be consigned to an also ran status compared to its two behemoth competitors.

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