Poor IGA sales are still eating into Metcash's profits, but its shares are up

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Revenue from IGA is being squeezed as the smaller supermarket chain feels the pressure of shelf discounting from the bigger players.

Discounting at Metcash’s IGA supermarkets saw underlying profit profit down 6.1% to $86.9 million for the first six months of the financial year.

However, in early trade, its shares were up more than 13% to $$1.50 as investors reacted to the news that sales aren’t as bad as they were.

Food and Grocery sales rose 0.7% to $4.54 billion. Metcash says the trend has improved from a negative 3.7%.

Group revenue was up 1.4% to $6.6 billion.

Local supermarkets are under increasing pressure from new players including Aldi which have been aggressively moving into Australia markets, pushing supermarket shelf prices down.

The big two, Coles and Woolworths, report substantial price deflation. Both have cut prices over three months to September: Coles by an average of 1.3%, Woolworths by 1.82%.

Metcash CEO Ian Morrice says the company is still experiencing highly competitive trading conditions, with price deflation running at 1.7%.

However, there is continuing improvement in the sales trend for food and groceries.

“We have also commenced ‘Working Smarter’, the next stage of the group’s transformation plan, designed to reduce complexity, make it simpler for customers and suppliers to do business with Metcash and to reduce our cost of doing business,” Morrice says.

“In addition, we will look to develop future growth opportunities and invest in new channels. Recently we have begun exporting Australian product, sold direct to consumers in China through Alibaba’s online Tmall platform.”

Metcash’s results in detail:

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