Newsagent and convenience store operator McColl's Retail (MCLS) reports robust sales growth and progress with its store conversion and expansion strategy in its latest missive. However the neighbourhood retailer is marked down 1.38p to 175p on signs the wider supermarkets price war is having an impact on its business.

Web chart - McColl's - Dec 14

The £184.7 million cap's trading update, covering the 14 and 53 weeks to end-November, highlights acceleration in sales in the fourth quarter, with revenues growing 5%, driven by a step up in store acquisitions. Yet like-for-like sales for the final quarter softened 1% year on year, reflecting the impact from the deflationary and competitive pressures now afflicting the broader UK grocery sector.

McColl's CEO James Lancaster insists 'customers are responding well to our improved convenience offer, but with disposable income under continued pressure, the consumer outlook remains challenging.' The company, which floated earlier this year (25 Feb) via a £133 million funding in order to refinance debt and accelerate growth, is pushing ahead with new convenience store acquisitions and the conversion of a slug of its newsagents into food and wine convenience outlets, whilst simultaneously working on product range improvements and the widening of its services into everything from bill paying and postage to lottery ticketing.

The fully-listed company now operates 799 convenience stores and is on track to achieve its stated target of 1,000 by the end of 2016. McColl's has also now completed its programme of 191 local Post Office conversions, a new format in which post office services are offered to customers at the retail counter, which it insists has been well received.

Despite the warning of more testing trading conditions, house broker Numis Securities reiterates its 'buy' rating: 'We view this as a solid update, not least in the context of the significant deterioration in the broader food retail market and severe attrition in consensus earnings forecasts for the major grocers during 2014. We think this reflects the benefit of McColl's positioning in the more resilient convenience segment and its robust self-help strategy, which have underpinned the shares' 30% outperformance of the sector since IPO.'

Issue Date: 02 Dec 2014