Metcash Limited posted a modest rise in FY26 revenue and EBITDA, driven by strong Food segment growth and strategic acquisitions, while facing pressure in Hardware margins and suspending its Dividend Reinvestment Plan.
- Group revenue up 0.7% to $19.6bn including charge-through sales
- Food EBIT rises 5.4%, Liquor revenue grows 1.0%, Hardware & Tools revenue up 4.3%
- Underlying EBIT down 0.8% but up 1.6% excluding one-off costs
- Operating cash flow strengthens to $558m with leverage at 1.0x
- Final fully franked dividend of 9.5 cents declared; DRP suspended
Metcash Navigates Mixed Market Conditions with Strategic Gains
Metcash Limited (ASX:MTS) delivered a cautiously resilient FY26, reporting a slight uptick in group revenue to $19.6 billion, bolstered by strong performance in its Food division and strategic acquisitions. While overall earnings before interest and tax (EBIT) dipped marginally by 0.8% to $503.7 million, the figure improves to a 1.6% rise when stripping out $12.4 million in one-off strategy and integration costs, underscoring operational resilience amidst a challenging retail landscape.
The Food pillar was the standout, with EBIT climbing 5.4% to $261.8 million, driven by a 5.4% growth in ex-tobacco sales. This segment’s strength reflects improved competitiveness within the IGA network, which narrowed its large-store price gap to 2.1%, making it more price competitive than ever. Foodservice & Convenience continues its rapid expansion trajectory, boasting a 38.2% compound annual growth rate (CAGR) since FY23, supported by acquisitions like Superior Foods and new supermarket ownership initiatives.
Liquor Gains Market Share Despite Earnings Pressure
Liquor revenue increased by 1.0% to $5.4 billion, with market share rising to 32.3%, reflecting the agility of independent retailers and a diversified channel approach. However, EBIT fell 3.8% to $100.1 million, weighed down by softer first-half trading and higher costs, though the second half showed improvement supported by inflationary tailwinds and shopper demand for convenience and localised offers. The renewal of over $500 million in national retail and on-premise contracts highlights the strength of Metcash’s platform in this space.
Hardware & Tools Shows Growth but Margin Challenges Persist
The Hardware & Tools division grew revenue by 4.3% to $3.7 billion, buoyed by improved second-half momentum and strong performance in Total Tools retail sales, which increased by 7.2%. Nonetheless, EBIT declined 6.3% to $177.3 million, impacted by softer trade demand in Victoria and Tasmania. The integration of Total Tools with the Independent Hardware Group is complete, with early scale benefits emerging. Management is focused on a strategy reset to return the combined business to mid-cycle margins, amid ongoing market headwinds.
Robust Cash Generation and Disciplined Capital Management
Metcash’s operating cash flow rose 3.5% to $558 million, reflecting disciplined working capital management and the quality of earnings. The three-year average cash realisation ratio improved to approximately 104%, comfortably above the long-term target range. Net debt increased modestly to $617 million, with the debt leverage ratio steady at 1.0x; the low end of the company’s target range; providing financial flexibility for future growth opportunities.
Capital expenditure moderated to $244 million, down from $552 million the prior year, reflecting a disciplined approach following significant prior-year acquisitions. The board declared a fully franked final dividend of 9.5 cents per share, maintaining the full-year dividend at 18 cents. Notably, the Dividend Reinvestment Plan has been suspended until further notice, a move that may signal a more cautious capital allocation stance.
Digital Expansion and AI-Ready Technology as Growth Catalysts
Metcash continues to invest in digital transformation, with its Sorted B2B marketplace now accounting for approximately 30% of group revenue, representing a modernisation of its wholesale platform. The near completion of the Horizon ERP upgrade program positions Metcash as an AI-ready organisation, leveraging Microsoft’s enterprise technology stack to enhance inventory management, operational intelligence, and retail media initiatives. This technology foundation is expected to unlock new efficiency and growth opportunities across the network.
Looking into FY27, Metcash reported a steady start with group sales ex-tobacco up 2.4% in the first seven weeks, despite softer conditions in May. Hardware & Tools continued its positive momentum with high single-digit growth in Total Tools, while Food and Liquor recovered well in June after a subdued May. The company also flagged an ongoing cost-out program targeting $25 million in annualised savings to support earnings resilience amid expected market challenges.
Bottom Line?
Metcash’s FY26 results reflect a business balancing steady growth and operational discipline amid sector headwinds, with digital and AI investments poised to be key differentiators as it navigates a cautious FY27.
Questions in the middle?
- How will Metcash’s suspension of its Dividend Reinvestment Plan affect investor sentiment and capital allocation?
- Can the Hardware & Tools division successfully execute its strategy reset to restore margins amid ongoing trade softness?
- To what extent will the Horizon ERP and AI initiatives translate into tangible competitive advantages and margin expansion?