Metcash profit slides amid supermarket wars

Grocery wholesaler Metcash has reported a sharp fall in its half-year profit.

The company made a net profit of $82 million in the six months to the end of October, which is down 13 per cent on its profit for the same period last year.

The supplier of IGA supermarkets says revenue was up 3.5 per cent to $6.34 billion, with its underlying profit after tax excluding one-off costs up 4 per cent to $121.3 million.

However, Metcash's chief executive Andrew Reitzer says conditions remain tough in the grocery sector, with increased competition between Coles and Woolworths pushing down grocery prices across the board and pressuring profit margins.

"The deflationary trading conditions are expected to continue and we are now expecting to maintain the higher marketing spend into the second half of the year," he noted in the report.

Mr Reitzer says Metcash's full-year earnings per share is also expected to be lower than previously thought, partly because of a regulatory delay that held up its Franklins takeover for 18 months.

"The number of Franklins stores that had to be closed or will be closed was higher than anticipated and the stores had deteriorated more than expected as a result of the delay in the sale," he explained.

"This coupled with the loss and closure of some stores and loss of operating leverage due to ongoing deflation will have to be managed carefully in the second half of the year." The company now expects earnings per share to slip between 2 to 6 per cent over the company's full financial year.

It has declared an interim dividend of 11.5 cents, which is the same as last year's, however some analysts are worried the dividend will need to be cut in the near future if the company's profits continue to slide.

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