Poundland shares took a hammering yesterday after the discount retailer posted a fall in profits and warned of a “highly volatile” trading backdrop.
The group has expanded rapidly during the economic downturn, with consumers tightening their purse strings, but the chain faces stiff competition from the likes of Home Bargains and B&M as well as a fight-back from the big supermarket operators.
Underlying pre-tax profits for the six months to the end of September came in at £9.3 million, 26 per cent down on the same period last year as the retailer was hampered by higher store opening costs and adverse currency movements. Like-for-like sales were down 2.8 per cent as it noted the industry was “more competitive than ever”.
Bosses also warned that the national living wage – which means workers over 25 must be paid at least £7.20 an hour from next April, rising to £9 by 2020 – would cost an additional £4.3m in the 2017 financial year.
However, this will not result in higher prices for customers, it added, with the group instead planning cost-cutting measures such as self-scanning checkouts and shelf-ready packaging.
Poundland, which has opened several of its stores in ex-Woolworths sites, said its current quarter’s performance would depend more than ever upon the crucial last few weeks’ trading in the run up to Christmas.
Investec Securities analyst Kate Calvert said the brokerage’s recommendation on Poundland’s shares was under review.
“Interim results are in line with lowered expectations,” she noted. “The disappointment lies within current trading which is clearly weaker than expected as Poundland heads into peak.”
Shares closed down 20 per cent at 222.7p. In September, Poundland’s £55m takeover of rival 99p Stores was given formal clearance from competition authorities.
Poundland chief executive Jim McCarthy said the merger would provide a huge lift as the financial year progressed.
“The 99p Stores acquisition is a transformational deal for us, adding the equivalent of five years of UK organic growth and 40 per cent to our store numbers in one go,” he said. “The early sales uplifts from the first converted stores are very encouraging and we now plan to accelerate the conversion programmes so that the vast majority of 99p Stores will be converted by the end of April 2016.”