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Metcash (ASX: MTS) shares have plunged nearly 17 per cent after the grocery supplier flagged a potential $270 million hit because one of its main customers has shunned its new South Australian distribution centre.
Drakes Supermarkets announced it would not use the distribution centre beyond the end of their agreement in June 2019.
Drakes spent around $270 million with Metcash in South Australia in the 12 months to 30 April and the news sent the MTS share price into freefall with a 17 per cent drop to $3.05 at around 2pm.
Metcash says it expects to report a 1.2 per cent sales decline at its supermarkets and convenience business for the full year ending 30 April, 2018, and a 3.6 per cent sales decline at its wholesale business, excluding tobacco.
The decision by Drakes is likely to lead to an impairment to the carrying value of Metcash's goodwill and other assets.
Metcash, whose South Australia operations have already been hit by the arrival of Aldi in 2016, says other customers have indicated support for the new distribution centre.
It says Drakes had not advised it of any intention to change its supply arrangement in Queensland.
The company says it will weigh the implications of the news with a view to updating investors by the time it releases its full-year results on 25 June.
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