Last month, the company confirmed convenience store 7 Eleven would cease its lucrative supply contract with the distributor, worth some $800 million.
With the contract set to end by August 2020, Metcash also flagged a $15 million hit to the retailer’s earnings before interest and tax (EBIT) in its food division.
At the time, chief executive Jeff Adams told The Sydney Morning Herald and The Age the situation was “disappointing” but the retailer could not comply with 7-Eleven’s seven-day delivery and four-hour fulfilment windows.
“You can do those things, but they become very expensive. It just reached a point where the contract was going to lose money, there was no point in continuing,” Mr Adams said.
It’s the second goodwill impairment the $2.6 billion retailer has taken in two years, with the company surprising investors in June last year with a $352 million write-down, the majority of which was to the business’ goodwill.
The fresh impairment will be marked as a significant item on the company’s accounts and is likely to significantly hurt the retailer’s profits, with its earnings for the 2019 financial year dropping 3 per cent to $210 million, though its overall revenue increased to $12.6 billion.
Metcash will implement other cost savings in effort to offset the loss incurred by the contract end, but noted under Australian Accounting Standards, goodwill assessment cannot factor in future cost savings.
Metcash is set to release its half-year results on Thursday.