Poundland adopts cautious outlook after profits jump

Discount retailer Poundland yesterday set the scene for further expansion after posting a surge in annual profits, but warned of a tough start to the new financial year.

Poundland is under exploited and still has many more years of new store opening growth says its chief executive Picture: Ian Georgeson
Poundland is under exploited and still has many more years of new store opening growth says its chief executive Picture: Ian Georgeson

Chief executive Jim McCarthy said changes to shopping habits meant consumers across the spectrum were hunting for bargains and that the business would prosper even as the economy improves.

He said Poundland and its Dealz brand, operating in Ireland, were “still under-exploited … with many more years of new store opening growth”.

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Underlying pre-tax profits leapt 18.6 per cent to £43.7 million in the year to 29 March, the latest results revealed. The group disclosed earlier this year that annual sales topped £1 billion for the first time.

But McCarthy said the first half would be “relatively subdued”. It compares with a period last year when it benefited from a late Easter, good weather and the loom band craze.

Sales at the start of the current financial year, for the 11-week period ending on 14 June, were ahead by 4.1 per cent on a constant currency basis, a marked slowdown from the full year growth rate of 11.8 per cent.

Poundland also said it expects a £4m hit to full-year results for 2015-16 from the impact of the weak euro.

The group had 588 stores at the end of the 2014-15 period after opening 60 additional outlets and plans to open another 60 for the current year including ten under the Dealz brand in Ireland.

It also aims to have ten Dealz stores operating in Spain and McCarthy said trial openings there so far had “got off to an encouraging start”.

Meanwhile, the group has agreed the £55m takeover of rival 99p stores, which has 251 sites, though the transaction faces an in-depth probe from the Competition and Markets Authority. Poundland said it was disappointed at the decision.

The group, which floated on the stock market last year, has said that its long-term target is to operate more than 1,000 stores in the UK.

McCarthy told investors: “I am pleased to report a record year of sales and profit growth for Poundland. Notwithstanding a challenging start to the year, I expect to see a year of growth for Poundland as we have a very strong opening programme and we will continue to be the standard bearer for genuine and amazing value.

“Structural change has occurred in shopping throughout the UK over the last several years. Consumers across the 
socio-demographic spectrum now appreciate value more than ever before.

“Poundland’s single price point will continue to help consumers plan their household budgets with certainty and confidence, even in improving economic conditions.”

Chairman Darren Shapland added: “This has been a year of good progress for Poundland and one where we have delivered on our IPO promises and laid the foundations for future growth.

“Our store opening programme for the 2016 financial year is strong and I look forward to the future with confidence as we take the Poundland and Dealz offer to even more customers in the UK and abroad.”

The firm proposed a final dividend of 3p per share, giving a total shareholder payment for the year of 4.5p.

Paul Thomas of retail consultancy Retail Remedy described Poundland’s rate of growth as “blistering” and “the sort of thing the mainstream supermarkets can only dream of”.

He added: “With their marketing focusing on quality, Aldi and Lidl have so far proved less of a threat to Poundland than they have to the Big Four grocers.

“But this is likely to be only a temporary truce. The German discounters’ growing firepower could soon be turned on Poundland. And after having things its own way for so long, this may prove one of the toughest tests of Poundland’s defences in its 25-year history.”