Metcash has downgraded its earnings guidance for the current financial year blaming loss of operating leverage due to price deflation in its grocery business.
Also weighing on earnings is the closure of more Franklins stores than expected, du to delays in the acquisition caused by the competition watchdog's legal challenge to the transaction.
“The number of Franklins stores that had to be closed or will be closed was higher than anticipated and the stores had deteriorated more than expected as a result of the delay in the sale,’’ said Metcash chief executive Andrew Reitzer.
‘‘This coupled with the loss and closure of some stores and loss of operating leverage due to ongoing deflation will have to be managed carefully in the second half of the year. Therefore due to the combined impact of these factors the company revised our full year underlying earnings per share guidance to -2 per cent to -6 per cent,” Mr Reitzer said.
Previous was guidance flagged a 1 to 3 per cent fall in undlerying EPS for the year.
Metcash shares were down 11 cents, or 3.1 per cent, at $3.40 in early trade.
Metcash said the 18 month delay in the Courts, and the subsequent delays with landlords and retailers, has resulted in more of the marginal Franklins stores needing to be closed than anticipated.
Of the 90 Franklins stores, 58 stores have been sold and handed over or are expected to be sold, five stores are under review, while 27 stores have been closed or are likely to be closed, the company said.
The announcement was made with the company’s first half results with Metcash reporting a 1.2 per cent lift in earnings before interest, tax and amortisation (EBITA) to $206.2 million.
The result was achieved on a 3.5 per cent rise in wholesale sales to $6.28 billion.