Key Highlights

• Food sales excluding tobacco rose 2.6%, liquor sales rose 0.8%, and hardware and tools sales rose 6%.

• Hardware and Tools supplies Mitre 10, Home Timber & Hardware and Total Tools.

• For the year to 30 April 2026, reported to the ASX on 22 June 2026, Metcash recorded sales Revenue including charge-through of $19.6 billion, up 0.7%, or 3.8% excluding tobacco.

Why would a wholesaler warn on first-half Earnings while its sales are still growing? Metcash (ASX:MTS) gave the answer in its Annual General Meeting trading update on 9 September 2026: in the first 18 weeks of FY27, group sales excluding tobacco rose 2.8%, but mix, tobacco excise changes and cost Inflation are expected to weigh on first-half earnings.

The update at the centre of the story

Management attributed the earnings pressure to three items: an adverse sales mix in Superior Food, the removal of an accelerated tobacco excise increase, and persistent cost inflation in food and liquor. It said cost-out programmes were on track and that second-half plans aim to offset elevated food and liquor cost pressures while supporting hardware momentum.

The distinction matters. Sales growth that arrives through lower-margin lines can lift revenue without lifting profit, and this update points to exactly that tension.

What Metcash does

Metcash is a wholesale distributor operating through three divisions. Food supplies independent supermarkets, including the IGA network, plus convenience and foodservice customers through Superior Food. Liquor supplies independent bottle shops and licensed venues through Australian Liquor Marketers and related banners. Hardware and Tools supplies Mitre 10, Home Timber & Hardware and Total Tools.

The model earns money from distribution margins, supplier arrangements and network services, with independent retailers rather than Metcash carrying most store-level risk. That structure makes volumes, mix and operating cost control the main profit drivers.

FY26: sales stable, profit slightly lower

For the year to 30 April 2026, reported to the ASX on 22 June 2026, Metcash recorded sales revenue including charge-through of $19.6 billion, up 0.7%, or 3.8% excluding tobacco. Underlying Profit after tax was $268.8 million, down 2.4%, and underlying Earnings Per Share were 24.5 cents against 25.1 cents a year earlier.

Group EBIT was $503.7 million, down 0.8%, or $516.1 million before strategy and integration costs. Operating Cash Flow rose 3.5% to $558.0 million. Net Debt was $616.6 million, a Leverage Ratio of 1.01 times against a target range of 1.0 to 1.75 times.

The total Dividend was 18.0 cents per share fully franked, including a final dividend of 9.5 cents paid on 26 August 2026. The Dividend reinvestment plan was suspended until further notice.

Divisional performance

Food EBIT rose 5.4% to $261.8 million on revenue of $10,543.0 million. Tobacco sales fell 29% to $1,308.7 million, a headwind to reported revenue within the Food division. Superior Foods revenue rose 15.8% to $1,454.0 million, and Metcash said it had met its synergy targets, with more than $14 million of run-rate synergies delivered.

Hardware and Tools EBIT fell 6.3% to $177.3 million. Within that, Hardware normalised EBIT fell 7.0% to $105.0 million while Tools rose 3.7% to $79.2 million. Total Tools network sales reached $1,229.0 million, up 6.1%.

In short, Food and Tools carried the year while Liquor and Hardware were softer.

Competitive position and sector conditions

Independent grocers compete against much larger supermarket chains, so price perception is central. Metcash reported that the large-format IGA price gap narrowed to 2.1% from 3.4%, and the all-IGA gap to 6.4% from 7.4%. Narrower gaps support shopper retention, but they typically require investment in pricing.

Metcash also said it will wind down its New Zealand liquor wholesale Business over the coming months, with an earnings impact of about $2 million.

Hardware remains cyclical, tied to housing activity, renovation spending and builder demand. At the June result, management expected hardware conditions to stay challenging and retail margins to remain under pressure. The September update spoke of returning the division to mid-cycle margins, which implies margins are currently below that level.

Outlook items management has flagged

In June, Metcash guided to FY27 net finance costs of $130 million to $135 million, Capital Expenditure of about $150 million excluding acquisitions, and roughly $25 million of annualised savings from cost-out programmes. It estimated the tobacco excise programme would have a net earnings impact of about $10 million on Food, although the September update indicated the accelerated increase had since been removed.

The company also flagged that the first deployment of its Horizon enterprise resource planning system is planned for the second half of calendar 2026, and that a later release could move into early 2027, adding $5 million to $10 million of costs.

During the first seven weeks of FY27, group sales excluding tobacco were up 2.4%, with Total Tools up 9.5%. The later 18-week figures show a modestly more encouraging rate.

Risks and what to watch

The main risk is Margin rather than demand. Persistent cost inflation, adverse mix and competition from larger grocers could keep profit growth below sales growth. Hardware depends on a housing cycle that management itself describes as challenging, and tobacco excise policy has already shifted earnings expectations once this year.

Execution risk also sits in the system upgrade and in acquisitions of supermarket retail ownership, which Metcash said it is pursuing. Three Daly's stores in Victoria were expected to complete in July 2026.

Balance sheet capacity looks reasonable at 1.01 times leverage, which sits at the bottom of the target range and leaves room for investment.

The next scheduled checkpoint is the half-year result for the six months to October 2026, which will show how large the flagged earnings pressure actually was. Investors may also watch Superior Food mix, tobacco volumes, hardware like-for-like sales and progress on cost-out.