Poundstretcher profits drop as it expands store estate

High street discounter Poundstretcher has suffered a decline in both sales and profits as it continues to expand its store estate.

Total sales fell 2.5% from £397m to £387m, according to the latest accounts filed at Companies House for the year to 31 March 2018. Pre-tax profits fell 24.2% to just over £2m due to increased distribution and admin costs.

The results come despite the estate growing by nine stores to 394, with 44 openings and 35 closures, as the company relocates from smaller legacy sites to retail parks.

The report said activities were affected by the ‘underlying economic climate’ but added that this presented an opportunity given the ‘value nature of the company’s proposition’.

Company secretary Hemant Patel also said sourcing a significant proportion of goods outside the UK left the business open to fluctuating exchange rates, particularly with the US dollar. The group’s policy was to limit the risk by “entering into foreign exchange contracts within a short period of time of export contracts being concluded”.

“The company manages other operating risks by maintaining very strong relationships with customers, suppliers and employees,” Patel said.

Read more: What retailers can learn from the success of ‘cheap and cheerful’ B&M Bargains

The multi-price discounter has increased its net estate by another 37 stores since the period, opening more than 40 since September under the name ‘Bargain Buys’, many in former Poundworld sites.

The Grocer revealed last week that Poundstretcher planned to convert the entire estate to the Bargain Buys banner over a number of years, as shops are refurbished or relocated.

There are also plans to grow the estate to 800 stores within two years and expand into Europe.

Up to 20 former The Original Factory Shop sites are set to be acquired by early next year.

Hannah Thomson, senior retail analyst at data and analytics company GlobalData, said the business should not expect its ambitious expansion strategy to be effective in “papering over the cracks in its existing estate”.

“Improving the in-store environment in these stores, as well as relocating and opening new ones must be a priority, if it is to compete in an increasingly crowded market,” she said.