Hardware Horizon Brightens For Metcash

This story features METCASH LIMITED, and other companies. For more info SHARE ANALYSIS: MTS

The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

This week's trading update by Metcash showed ongoing sales growth in FY26 with early signs management's hardware strategy may be unlocking value.

-Metcash’s AGM trading update slightly disappoints
-Importantly, the Hardware strategy is yielding results
-Cost guidance rises relating to integration & strategy
-Jarden concerned by rising competition in food and liquor

By Mark Woodruff

While grocery wholesaler and hardware group Metcash’s ((MTS)) AGM trading update this week fell slightly short of market expectations, the recent hardware merger and prior acquisitions are supporting management in navigating a difficult retail climate.

Sales growth has continued in the first 18 weeks of FY26 (April year-end) across the group’s Food, Liquor, and Hardware sectors.

Via its Food pillar, Metcash supports more than 1,600 stores across Australia, under banners such as IGA and Foodland. The stores are owned and operated by independent retailers, while Metcash provides wholesale supply, marketing programs, and logistics support.

The company also operates a Convenience and Foodservice division. In 2017, Metcash merged its Campbells Cash & Carry division with its convenience operations to create a single business unit, sometimes referred to as Campbells & Convenience.

Commenting on prior FY25 results at the AGM this week, Chairman Peter Birtles noted the increased diversification and strength of the group were behind sales and earnings growth, despite challenging macroeconomic conditions in all pillars, particularly in Hardware where trade activity remained subdued.

In June, FNArena covered analysts’ reviews of FY25 results at https://fnarena.com/index.php/2025/06/24/metcash-outlook-tobacco-sales-vs-rate-cuts/

Progress in Hardware

The acquisitions of Bianco Construction Supplies and Alpine Truss were completed in February 2024, the former to strengthen the Independent Hardware Group’s (IHG) trade offer and the latter to deepen IHG’s exposure to the building materials’ value chain.

In June this year, Metcash announced a major reorganisation of its hardware business by merging IHG and Total Tools Holdings into a single division, the Total Tools and Hardware Group (TTHG).

Long-time Metcash executive Scott Marshall (previously CEO of IHG) was appointed CEO of the combined TTHG, while Total Tools’ CEO Richard Murray departed post-merger after successfully doubling Total Tools’ size since its 2020 acquisition.

At the time, management expected the integrated structure to unlock growth through synergies in buying, shared customers, and streamlined operations, positioning the Hardware pillar for an anticipated market recovery.

At the FY25 results in June, management pointed to a stronger fourth quarter as an early sign of recovery in Hardware. Indeed, this momentum has carried into the first half of FY26, with sales up around 2.2% as trade volumes begin to stabilise.

Improving IHG sales (2.2% growth in the financial year-to-date from 1.3% in the first seven weeks) from brands such as Mitre 10 and Home Hardware were offset by margin pressure due to rising competitive intensity, notes Morgan Stanley.

Total Tools sales remain soft (-2.0% in the year-to-date) due to cost-of-living pressures, but the retail margin recovery seen in the second half has been sustained.

More on the trading update

Group sales (ex-tobacco) were up 5.1% year-to-date, with Food sales up 8.6% (supermarkets up 2.6% despite a further -32% drop in tobacco sales) and Convenience/Foodservice up circa 30% including the Superior Foods contribution.

Liquor sales grew 1.5%, boosted by the inclusion of Steve’s Liquor Warehouse from June, though underlying growth slowed and remained below Ord Minnett’s first half forecast of 2.5%.

This broker notes group sales growth excluding tobacco in the Supermarkets division slowed to 2.4%, down from 2.9% in the first seven weeks of the half. This compares with growth of 7% at Woolworths Group ((WOW)) and 4% at Coles Group ((COL)), with reduced store traffic linked to the decline in tobacco sales.

Tobacco sales declines have accelerated following regulatory changes from July 1, down -32.1% year-to-date versus a -28.8% fall in the first seven weeks and the broker’s forecast for a -29% drop in the first half.

Costs

Management’s FY26 cost guidance is for an extra -$7m in Corporate (across retail media, cyber, technology and employee incentives) lifting FY26 guidance to circa -$41m compared to prior consensus forecast for -$34.6m.

The company also guided to -$12m in of one-off costs for the first half allocated within the pillars rather than below the line: -$4m in Food, -$6m in Hardware (both integration and strategy), and -$2m for strategy in Liquor.

While classified as one-off, primarily linked to the integrations of Campbells and Superior Food Services, along with the merged IHG & Total Tools, UBS expects some expenses could persist given ongoing business optimisation, consistent with restructuring costs seen in FY25.

Metcash acquired Australian foodservice distributor Superior Food Services in June 2024 for -$412m, expanding the group into the large foodservice market.

Ord Minnett notes sales growth at Superior Foods rose to 2.7% over the first 18 weeks of FY26, up from 0.8% in the initial seven weeks, though margin pressure persisted from adverse product mix and intensifying competition.

Management has previously noted the Food pillar is now “much larger, more diversified and resilient,” underpinned by the addition of Superior and the competitiveness of the group’s independent supermarket network.

Outlook

Following the AGM trading update, Citi lowers its earnings forecasts for Metcash by around -4% in FY26 and -1% thereafter, reflecting guidance for one-off operating segment costs and higher ongoing corporate expenses.

Jarden had previously anticipated a housing recovery, forecasting around 20% hardware earnings growth for Metcash in FY27 versus about 7% for Bunnings.

As Metcash shares have outperformed over the past six months, Jarden sees the housing recovery largely priced in and shifts to a Neutral rating from Overweight.

Further, this broker has concerns over rising competition in food and liquor, with Woolworths and Endeavour Group ((EDV)) regaining momentum under new leadership.

The key risk for Metcash, in Jarden’s view, is a potential irrational competitive response in liquor or grocery as major chains seek to regain momentum, though there is little evidence of this so far.

Following this week’s trading update, the average target price for Metcash derived from five daily monitored brokers in the FNArena database edged up to $4.12 from $4.10, implying 5.1% upside to the closing share price on September 11.

Macquarie is yet to refresh its research for the update.

Of the five brokers, two have Buy or equivalent ratings and three are on Hold.

Outside of daily coverage, Jarden (now a Hold-equivalent) has a target price of $4.00, down from $4.10.

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