High street newsagent McColl’s has revealed its sales have fallen following the collapse of Palmer & Harvey last Christmas.

It comes as the business axed 66 of its most under performing stores this year, after acquiring 11 new branches and upgrading 59 more.

The group said in a trading update that the failure of the supplier last year resulted in "significant supply chain disruption", and that it is "continuing to experience a number of challenges".

Groceries wholesaler Palmer & Harvey had debts of more than £700m when it crashed last November, leaving its chain of 90,000 clients, including Tesco and Sainsbury’s at a loss.

More than 1,300 McColl’s branches are now stocked by Morrisons, however initial plans to resurrect the Safeway brand have been placed on hold.

Speaking today, McColl’s said it now expects adjusted earnings for the full year to come in at about £35 million, down from a previous estimate of £44 million.

In a trading update, the group, which has a supply partnership with supermarket Morrisons, saw total revenue fall 0.5% in the fourth quarter, while comparable sales were flat.

Full-year like-for-like sales were down 1.4%.

McColl’s chief executive Jonathan Miller said: "2018 has been a very difficult year for the business, marked by unprecedented supply chain disruption and ongoing challenges."

The group said: "Following the collapse of Palmer & Harvey, we have experienced significant supply chain disruption and have needed to accelerate the rollout of Morrisons supply to 1,300 of our stores.

"The speed of this transition has created significant challenges and severely disrupted our plans for the launch of Safeway.

"Looking ahead, we expect competition in the grocery retail sector to remain intense and we face into significant cost pressures.

"Important to our future success will be continuing to develop our partnership with Morrisons, alongside our plans to enhance our neighbourhood convenience offer by improving the quality of our estate and our overall customer experience."

In addition, a stronger performance in tobacco, relative to other categories, has resulted in a lower conversion of sales to profit than anticipated. As a result, we now expect adjusted EBITDA for FY18 to be around £35m.

McColl’s is a major neighbourhood retailer, with an estate of 1,556 managed convenience stores and newsagents.

"We operate McColl’s branded convenience stores as well as newsagents branded Martin’s across the UK, except in Scotland where we operate under our heritage brand, RS McColl," a statement added.

"Our dedicated colleagues serve five million customers every week, and we are the largest operator of Post Offices in the UK, with c.600 in-store counters/branches.McColl’s Retail Group."

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