Shares in Poundland (PLND) sank more than 6% this morning despite sales at the discount retailer breaking the £1bn barrier for the first time as trading in the first half is set to be “relatively subdued” with a slow down in store openings, tough comparatives and currenct headwinds.
Revenues in the group’s first year as a listed plc – the 12 months to 29 March – increased 11.9% to £1.12bn and underlying pre-tax profits were up 18.6% to £43.7m. The average basket size grew by 3.7% in the year to £4.72 - with weekly customer numbers up 9.1% - thanks to the succes of new product ranges, including Jane Asher’s Kitchen and Make Up Gallery, which won the Own Label Range of the Year at the recent Grocer Gold Awards.
However, in a trading update for the 11 weeks to 14 June Poundland reported a sales increase of just 3.5% to £228.9m, implying like-for-like figures were down by between 3% and 4%. It compared to a very strong first quarter a year ago when sales jumped 18% thanks to the benefits of a late Easter, good weather and the loom band craze.
Trading has been held back in the current financial year by a slowdown in the store opening programme, with only six new shops added to the estate in the first three months. Poundland was confident it would reach 40 new stores by the end of the first half and 60 by the year end. If the discounter hits the target it would match the 60 net new shops opened in 2014-15, which took its portfolio to 588 across UK and Ireland.
CEO Jim McCarthy said: ”We face a number of headwinds in the current financial year. The most significant of these is the weak euro. It should also be noted that the first half of the last financial year was an exceptional period.”
The Spanish trial was also proceeding well, with seven Dealz stores now trading and the group on track to open three more, he added.
“I am pleased to report a record year of sales and profit growth for Poundland,” McCarthy said. “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 on the UK’s high streets and retail parks.”
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.”
Poundland proposed a maiden final dividend of 3p a share, giving total dividend payment for the year of 4.5p.
The City took a dim view of the results upon the market opening, with Poundland’s stock falling more than 6% to a new low of 292.1p. It has since recovered some of the losses, with shares currently trading 2.6% down at 303.6p.
Analysts at Shore Capital said: “We believe the accelerated opening programme and weaker comparatives leave Poundland well-placed to build sales momentum ahead of the important Q3 trading period, which accounts for about 50% of annual EBITDA.”
The house broker downgraded its profits forecast for the current year for the second time last week, sending Poundland’s shares to back below the 300p they floated at in March 2014.
“We believe Poundland stock represents an opportunity to invest in a high-returning structural growth story, with access to growth in the UK, and overseas markets overtime, as the European discount market evolves and matures,” ShoreCap added.
Poundland did not update the market on the ongoing in-depth investigation by the Competition & Authority into its proposed £55m acquisition of rival 99p Stores. The group said it was “surprised and disappointed” that the CMA did not allow the deal to complete. It added the merger, which would give it 250 more stores, was good for customers and shareholders alike. A decision is expected by October 23.
The group also announced that trading director Richard Lancaster has left after three years to join the Co-operative Group as managing director of the funeral business. Non-executive director Paul Best has also resigned from the board. He has represented private equity firm Warburg Pincus since its investment in Poundland in June 2010. The move follows Warburg reducing its stake in the group to 16.4% earlier this year.