Half-year profits at Metcash, the operator of IAG supermarkets, have been dragged down by food and grocery sales subdued by declining consumer sentiment.
Sales revenue for the first half of the 2017 financial year was up 0.3% to $6.63 billion but profit after tax was down 38.6% to $74.9 million compared to the same six months last year.
Earnings growth in liquor and hardware was more than offset by lower earnings in food and groceries.
Total food and grocery sales fell 1.2% to $4.49 billion. Supermarket sales slipped 1% to $3.73 billion but like for like sales at IAG stores rose 0.3%.
Analysts say weak wages growth is squeezing retail sales of food. Intense competition, driven by discount players such as Aldi, is also impacting sales at established supermarket chains including Woolworths.
“We continue to see positive momentum in our liquor and hardware pillars,” says CEO Ian Morrice.
“Our group results were however negatively impacted by an intense trading period in the food and grocery sector, as well as a slow-down in the growth of consumer spending.”
Hardware sales increased 9.6% to $581.6 million, including $51.5 million from acquisition Home Timber & Hardware.
Morrice says Mitre 10 delivered sales in line with the same six months the year before despite being impacted by competitor liquidation sales and unseasonal adverse weather.
The company, in the middle of an efficiency and cost cutting program, didn’t declare a dividend but says it expects shareholder payments to resume in 2018.
Metcash expects earnings at the food and grocery business to be greater in the second half despite significant headwinds.
The results for the six months to October at a glance:
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