February 18, 2019 / 7:39 AM / 10 months ago

McColl's shares jump as like-for-like sales recover

(Reuters) - British convenience retailer McColl’s is on course for its first rise in like-for-like sales in a year in the first quarter, the company said on Monday, outweighing a warning of the potential impact of Brexit and pushing shares up 8 percent.

The company said sales had recovered from falls earlier in 2018 to stand flat on the year in the fourth quarter and up 1.2 percent in the 11 weeks ended Feb 10.

McColl’s, which manages 1,550 convenience stores and newsagents across the UK, also warned of the potential for an 11 percent drop in sales in April and May if Britain leaves the European Union without a deal, as customers migrate to new products and supply chains are disrupted.

But it said overall that it does not expect Brexit to have a material impact on the business if the country manages to strike a divorce deal with the bloc.

“McColl’s prelims were as good as could be expected at this stage,” Peel Hunt analysts said.

“It’s not going to be easy to regain the confidence of the customer or the investor base given that 2018 was doubtless an ‘annus horribilis’ but there are plenty of plans afoot to stabilise things and convenience remains firmly in growth as a wider sector.”

The company said it had modelled a number of scenarios pointing to supply chain disruptions and a rise in costs and prices around Brexit.

“These potential impacts could include a short-term reduction in sales, due to product shortages, pressures on gross margin and a higher level of cost inflation,” it said.

“It is expected that the majority of product cost inflation would be passed on to customers and therefore could be mitigated overall,” it added.

The company also said it would consider actions, including significantly reducing capital spending and dividends and reviewing its current arrangements with banks if the impact of Brexit proved worse than any of its modelled scenarios.

Total sales increased 0.4 percent so far this fiscal year. It continues to expect adjusted core earnings for the year to be a modest improvement over fiscal 2018.

The company also proposed a final dividend of 0.6 pence per share compared to the 6.9 pence it paid last year.

Reporting by Arathy S Nair in Bengaluru; editing by Patrick Graham

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