Convenience chain McColl’s benefited from a coronavirus-drive uplift in demand last year, but its profits performance disappointed the City as improved sales failed to flow to the bottom line.

The chain’s total sales for the 53 weeks to 29 November were up 3.2% to £1.26bn, driven by a 12% jump in like-for-like sales as existing stores benefited from a spike in demand during the pandemic.

This double-digit organic growth represented a marked improvement on flat like-for-like sales in the previous year and was driven by strong performance in alcohol, fresh food and tobacco.

However, this category growth came at the expense of impulse products such as crisps and snacks, soft drinks and confectionery, as well as food-to-go. Gross profit fell to £300.9m from £315.7m, reflecting this changing mix of sales during lockdowns, as customers moved away from higher-margin impulse purchases to lower-margin take-home products as well as multibuys and value items.

In addition, profits were suppressed by the chain’s investment in price and ongoing net Covid-19 costs of £5.9m.

Retail analyst Nick Bubb noted: “The boom in shopping in local convenience stores over the last year has not been a licence to print money for McColl’s, with gross margins badly hit by a shift in the sales mix.”

Panmure Gordon analyst Matthew Webb cautioned: “2021 looks set to be another tough year, despite strong like-for-like growth thus far, with this being offset by negative margin mix.”

Since year end, like-for-like sales growth has moderated to 8.8% in the 15 weeks to 14 March 2021 and McColl’s remains “cautious on the year ahead” as it laps Covid stockpiling and last year’s lockdown as well as reduced government support.

However, Webb noted that additional details on its partnership with Morrisons were “more encouraging”, with the number of Morrisons Daily stores to increase from 31 to 300 over the next three years. The tie-up will also give it access to a wider grocery product range.

The potential benefits of the partnership has caused McColl’s to increase its target store estate to by 50 shops to 1,150, which “is a significant indication of McColl’s confidence in its improving prospects,” Webb said.

Additionally, McColl’s will look to increase its online sales via its partnership with Uber Eats to around 6% of sales (around £50m), compared with its current level of just 1%.

McColl’s shares edged up 0.3% on Tuesday but by Thursday lunchtime were 2.9% down for the week to 31.5p and remain more than 40% on their June 2020 high of 56p.

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