December 3, 2018 / 7:30 AM / 11 days ago

Retailer McColl's hit after switching to Morrisons supply

LONDON (Reuters) - British convenience retailer McColl’s (MCLSM.L) cut its profit forecast on Monday, blaming tough trading conditions and disruption to its business after it switched its major supply contract to supermarket group Morrisons (MRW.L).

Shares in McColl’s, already down 55 percent so far this year, were down 30 percent at 83.1 pence at 1520 GMT.

The group, which trades from 1,556 convenience stores and newsagents, forecast core earnings (earnings before interest, tax, depreciation and amortisation) for the year to Nov. 25, 2018 of around 35 million pounds and “no more than a modest improvement” in 2018-19.

Prior to the update analysts’ average EBITDA forecast for 2017-18 was 41.1 million pounds, according to Refinitiv data, and 43.5 million pounds for the following year.

Following the collapse of supplier Palmer & Harvey late last year McColl’s experienced significant supply chain disruption. This meant the firm had to accelerate the rollout of Morrisons supply to 1,300 of its stores.

“We are extremely grateful for Morrisons’ support during this period. The speed of this transition has created significant challenges and severely disrupted our plans for the launch of (Morrison’s brand) Safeway,” it said.

McColl’s added that it was working with Morrisons to address these issues and to develop an optimal range and promotional offer.

McColl’s also highlighted a stronger performance in tobacco, relative to other categories, which has resulted in a lower conversion of sales to profit than anticipated.

It said total revenue fell 0.5 percent in its fourth quarter, with like-for-like sales flat.

Looking ahead, the firm said it expected competition in the grocery retail sector to remain intense. It also highlighted significant cost pressures, particularly the increase in the government mandated National Living Wage. ($1 = 0.7821 pounds)

Reporting by James Davey; editing by Kate Holton

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