The Metcash Limited (ASX: MTS) share price is trading lower on Wednesday morning.
At the time of writing, the wholesale distributor's shares are down 1% to $4.03.
Why is the Metcash share price trading lower?
The Metcash share price has come under pressure today after broad market weakness offset the release of a positive trading update ahead of its annual general meeting.
According to the update, Metcash has started FY 2022 in a positive fashion, with trading continuing to be strong in all pillars and well above pre-COVID levels in FY 2020.
Management notes that a key driver of this is a shift in consumer behaviour. This includes more local neighbourhood shopping, the move from city to regional areas, more eating at home, home consumption of liquor substituting on-premise consumption, less overseas travel and duty free shopping, and a high level of home renovation and DIY activity.
Also underpinning its strong form has been the improved competitiveness of its store network supported by its MFuture program, COVID-related trading restrictions in Australia and New Zealand, and manageable increases in COVID-related costs.
How are its businesses performing?
For the first 16 weeks of FY 2022, Supermarket sales were down 1.8% over the same period last year. However, they are up a solid 12.9% over the prior corresponding period in FY 2020. This led to total Food sales falling 7.4% over the prior corresponding period or 1.4% excluding the impact of the 7-Eleven contract loss.
Things have been a lot more positive for its Liquor and Hardware businesses. Total liquor sales are up 9.5% over the same period last year, whereas Hardware sales are up 16.3% year on year.
In respect to the latter, management notes that Trade sales have continued to be strong, buoyed by a high level of residential construction and renovations activity. This has more than offset a decline in DIY compared with the same period in FY 2021.
One slight concern, though, is that strong demand is continuing to put pressure on stock availability, particularly for timber.
What else was announced?
Metcash's Chairman, Rob Murray, also revealed the company is looking to make its operations even more efficient.
He explained: "We are also investing in a new project named 'Horizon' which aims to drive efficiencies through simplification, as well as growth through making it easier to do business with Metcash. This will be a staged program with the first phase focused on simplification and building a better future operating platform."
However, despite this and its strong start to FY 2022, it hasn't been enough to stop the Metcash share price from dropping into the red today.
Nevertheless, the Metcash share price is still beating the market this year with a gain of 18% in 2021.
