Stock of the day: Metcash

(AI video summary)

This video was created on 10 June 2025 for IG audiences by ausbiz.

ASX code: MTS

Metcash exceeds profit forecasts with strategic consolidation

Metcash has delivered another positive update, with unaudited profit and loss after tax expected to exceed market expectations, coming in between $273 million and $277 million. The retailer has also announced that its hardware and total tools businesses will merge to bring all hardware brands under the same roof, including Mitre 10.

The company says this consolidation will streamline its relationship with other retail stores. Audited results are expected in June, with the stock up a healthy 4.5% in morning trade following the announcement.

This marks another consecutive update where Metcash has exceeded market expectations, demonstrating decent operational momentum. The company has benefited from price inflation that has boosted revenues, while also achieving solid volume growth across its food-related operations.

Competitive positioning and market challenges

Metcash operates a network of IGA stores, which typically feature smaller footprints than Woolworths or Coles and focus on neighbourhood-based retail. However, the company continues to face significant competitive pressure from these two retail behemoths.

The hardware division has provided important diversification away from pure grocery exposure. While the Mitre 10 business has historically performed well, it has encountered challenges in recent years with margins under pressure. Today's update suggests management is taking steps to address the softness that has affected the hardware space over the past twelve months.

The potential for falling interest rates and a housing market recovery could benefit Metcash's hardware operations. A revival in do-it-yourself investor activity around property improvements and renovations would likely boost sentiment in the hardware sector.

Analyst perspectives and competitive outlook

Despite the positive update, concerns remain about broader competition from Coles and Woolworths. In the hardware space, Wesfarmers' Bunnings remains a dominant force, although even this business has seen growth rates slow considerably amid challenging market conditions.

Recent commentary from Woolworths management suggests the major retailer is becoming more confident about its strategic direction following regulatory challenges and business turnaround efforts. The company is implementing strategies including price cuts on own-brand products and acceleration in automation, potentially intensifying competitive pressure on smaller operators like Metcash.

For investors considering the retail space, the choice between Metcash and larger competitors requires careful evaluation of scale advantages, operational efficiency, and strategic positioning. While Metcash has delivered consecutive positive updates, its ability to maintain momentum against well-resourced competitors remains a key consideration for investment decisions.