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Retailer McColl's hit by switch to Morrisons supply

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LONDON (Reuters) – British convenience retailer McColl’s <MCLSM.L> warned on profit on Monday, blaming disruption relating to a new supply contract from supermarket group Morrisons <MRW.L> and continued difficult trading conditions.

The group, which trades from 1,556 convenience stores and newsagents, forecast core earnings (earnings before interest, tax, depreciation and amortisation) for the year to Nov. 25 2018 of around £35 million and “no more than a modest improvement” on the 2017-18 outcome in 2018-19.

Prior to the update analysts’ average EBITDA forecast for 2017-18 was £41.1 million, according to Refinitiv data, and £43.5 million for the following year.

Following the collapse of supplier Palmer & Harvey late last year McColl’s experienced significant supply chain disruption. This meant the firm had to accelerate the rollout of Morrisons supply to 1,300 of its stores.

“The speed of this transition has created significant challenges and severely disrupted our plans for the launch of (Morrisons brand) Safeway,” McColl’s said.

“We are working together to address these issues and to develop an optimal range and promotional offer for the future,” it said.

McColl’s also highlighted a stronger performance in tobacco, relative to other categories, which has resulted in a lower conversion of sales to profit than anticipated.

McColl’s said total revenue fell 0.5 percent in its fourth quarter, with like-for-like sales flat.

Looking ahead, the firm said it expected competition in the grocery retail sector to remain intense. It also highlighted significant cost pressures, particularly the increase in the government mandated National Living Wage.

Shares in McColl’s, down 55 percent so far this year, closed Friday at 118.8 pence, valuing the business at £137 million.

(Reporting by James Davey; editing by Kate Holton)

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