This week I am looking at McColl’s following the announcement of its interim results on Monday 24 July. McColl’s is a leading neighbourhood retailer with 1,650 stores across the UK and the results mark one year since it announced the acquisition of 298 convenience stores from the Co-Op; a deal that has accelerated its shift away from being a traditional newsagent towards being a full-blooded convenience store retailer.
On the plus side, results show that like-for-like sales were up 0.2% for the first half of the year and 1.4% in the second quarter – a good result considering that like-for-like sales had hitherto been in negative territory for an extended period. The Chief Executive, Jonathan Miller, highlighted McColl’s focus on the relatively robust convenience market and the IGD forecasts that the UK convenience market will grow by 12% between 2016 and 2021. McColl’s hopes to benefit from this growth while continuing to grow its footprint and improve its in-store offering through better product ranges and the addition of more services (such as post offices and online shopping collection points that help drive customer footfall). On the downside, the food retail market remains very competitive and larger supermarkets also remain focussed on improving their convenience store offering. This competitive market may at some point drive negative like-for-like sales again, which can in turn hurt margins.
At the current valuation the shares do not look expensive and successful integration of the Co-Op stores should deliver attractive earnings growth. However, the increased debt as a result of the store purchases does leave the company more vulnerable in the short term should the UK economy suffer a downturn.