A decline in sales at Poundland stores has sparked fears that the recent bonanza for discount stores could be coming to an end.
Shares in the single-price chain slid nearly 4% to 299p, just below the 300p at which the retailer joined the the London Stock Exchange in March 2014. The fall came even though Poundland, which began life as a Lincolnshire market stall in the 1990s, had just confirmed annual sales had risen above £1bn for the first time.
Underlying profits before tax climbed nearly 19% to £44m in the year to the end of March. Sales rose nearly 12% to £1.1bn in the year or 2.4% on a like-for-like basis – which strips out gains from new store openings. But the company said that total sales were up just 4% in the 11 weeks since March – indicating a 4-5% fall in recent like-for-like sales according to analysts.
Nick Bubb, an independent retail analyst, said the fall in underlying sales would “unsettle investors.” Poundland also warned that profits would also be affected by the weak euro, which was hitting returns from its Dealz chain in Ireland and Spain.
Jim McCarthy, Poundland’s chief executive, said the pace of growth this year only looked slow because it was in comparison to an extremely strong period sales period in 2014 when growth hit 18%.
“Last year, we benefited from unusual circumstances – a late Easter, very warm weather, consumer confidence on the rise and exceptional sales from the loom band craze,” he said. Some £10m of the company’s £1.1bn sales came from loom bands last year – and most of those were sold over just a few months.
McCarthy added that a year ago, competitors such as B&M, Home Bargains and Poundstretcher were opening less new stores than they are at the moment. While competition is now hotting up again, McCarthy insisted that shoppers would not tire of “value” stores as the economy improves and they have more cash to spend. “There has been structural change in shopping behaviour and our view is that it is embedded,” he said.
He said that the march of the discounters, including Aldi and Lidl, continued to bring prices down across the market. The German chains have unleashed a supermarket price war that has hit the traditional big grocers. McCarthy said: “The supermarkets are in a difficult place. People are offering the same things as them at lower prices and their model has to change.”
David Jeary, a retail analyst at Canaccord Genuity, said Poundland’s latest sales figures were weak but the number of shoppers visiting the chain continued to rise and people were spending more on each trip. “That doesn’t point to people running away or shopping less but the proof will be in the pudding when we see future sales figures” he said.
Meanwhile, McCarthy said Poundland’s main focus was in opening new stores. It plans to open 50 new UK stores and 10 in Ireland by March next year – most of those before October. The retailer also expects to have reach its target of 10 stores in Spain, up from seven at present, by October – about six months ahead of schedule.
Poundland’s other major bid to increase the size of its chain – the planned £55m acquisition of rival 99p stores, is on hold while it is being scrutinised by regulators. The deal would add 251 stores, taking Poundland closer to its goal of building a 1,000-strong chain.
Next week, the Competition and Markets Authority will outline the issues it plans to investigate and a final ruling on the merger will come in October. An initial investigation suggested that Poundland would have to close 80 stores in order to meet competition regulations.
On Thursday, McCarthy said he believed no such closures would be necessary. “”With additional evidence and discussions in phase two [the regulator] will understand the compelling reasoning behind the deal,” he said.
