Poundstretcher future in doubt as accounts reveal slump in profits

Doubts hang over Poundstretcher’s ability to continue as a going concern, the company has said in newly filed full-year accounts.

Turnover rose 12.2% to £434.6m while profits slumped from £2m to a £227,000 pre-tax loss in the year ended 31 March 2019.

In a note in the accounts dated 19 February this year, owner Aziz Tayub said the future of the variety discounter hinged on cost reductions.

“At the time of approval of the financial statements there are material uncertainties over the outcome of the cost reduction strategy that may cast doubt over the company’s ability to continue as a going concern,” he said.

Ongoing liquidity depended on forecast improved margins and costs savings from engagement with suppliers for the period to March 2021, according to the accounts. Savings were also anticipated from operational changes, including moving distribution centre operations from Huddersfield to Kirby Muxloe, Leicestershire.

Early indications were “encouraging” and the board was “satisfied that the company is a going concern based on the forecasts prepared and the various strategic options they have available to them”.

The accounts outline how the group was part funded at the end of the year by a £10m overdraft facility and £4.95m loan. The overdraft was repaid in December 2019 using cash raised by extending credit terms.

“The board are actively reviewing other sources of loan finance to replace the overdraft facility, however, at the approval of the financial statements no new facilities have been agreed,” the accounts say.

The Grocer revealed last month that a restructure had seen chief operating officer Burcu Kerpicci leave after six months. Stores were said to have been under-trading while a new banner, Bargain Buys, had failed to deliver on expectations.

The accounts blame falling margins on “sales price pressure” and increasing overheads on factors such as wage inflation.

EBITDA for the year was £7.7m, down from £10.7m.

Sixteen stores were closed and 72 opened, leaving an estate of 450.

Tayub said: “The retail environment is challenging and in this environment the directors acknowledge that significant further restructuring of the business will be required in order to achieve a sustainable profitable and cash-generative business.”

The company was dependent on continued support from parent Crown Crest Group, which had provided financial, managerial and logistical assistance in the period, he said.

Recently filed Crown Crest accounts show turnover up 11.4% to £442.2m in the year to 31 March 2019, while pre-tax losses grew from 5.3m to £9.8m.