Poundland (PLND) shares have been hit today as the fixed-price retailer revealed poor trading in the final quarter of the year with the business struggling to integrate the 250 stores acquired from 99p Stores.
The share price, which has plummeted more than 30% so far in 2016, is down 3.4% today to 142.4p – way below the 300p float price from March 2014.
Poundland revealed in a fourth quarter trading update like-for-like sales for the year declined 3.9%, compared to a 2.4% rise in the previous 12 months, with trading deteriorating in the second half as figures fell 4.9% in the final six months.
However, the chain said despite the struggles it expected underlying pre-tax profits in the year to 27 March to be “broadly in line” with current market forecasts of between £35.8m and £41.5m thanks to good management of margins and costs. Poundland warned in January that profits would likely come in at the low end of expectations.
Total sales in the fourth quarter increased 29.8% to £330.8m, which included £40.3m from 99p Stores already converted to the Poundland fascia and £26.8m from the remaining 99p Stores estate.
Chief executive Jim McCarthy, who is retiring in July, said: “Against a tough retail background, this has been a transformative year for Poundland, strengthening further our position as Europe’s biggest single-price discounter. We have added over 300 shops to our portfolio in the UK and Ireland, in particular in the south of England, substantially increasing our geographical reach and scale.”
Poundland had converted 190 99p Stores by the end of the financial year after accelerating the programme upon discovering the acquired business was in a much worse shape than expected, with supply chain problems, understaffing, low stock levels and rat-infested shops.
“The 99p Stores’ conversion programme will complete by the end of April, at which point we expect to see the significant benefits of over 900 stores trading as one cohesive retail operation begin to materialise,” McCarthy added.
Sales in the year have jumped 17.9% to £1.3bn but the business has suffered in the second half as a result of difficult market conditions and footfall falling on the high street.
Jefferies praised the work done to convert the 99p Stores and keep EBITDA synergy targets of at least £25m on track but called Q4 “disappointing” and was worried about future growth levels.
“We believe that though the 99p stores deal brings synergies, the combined business is an increasingly mature UK discounter and that with reduced high-street footfall and likely cannibalisation from 900+ stores, LFL sales will be harder for incoming CEO Kevin O’Bryne,” the firm said. “At the same time, Poundland is particularly exposed to industry-wide cost pressures, given low operating margins.”