TJ Morris has posted bumper sales and profits but has warned the booming discount market will be squeezed when January’s VAT hike kicks in.

Operating profits at the discount variety retailer, which trades as Home Bargains, topped a record £46.6m in the year to 30 June, with sales up 23% to £590m. New stores, taking the estate to 225, and more shoppers seeking bargains had lifted performance.

But operations director Joe Morris warned the next 12 months would be challenging. “There are more people after the same custom,” he told The Grocer. “There’s much more overlap and competition. The sector will still grow, but margins are going to be squeezed because of the VAT increase, the weak pound, transport costs and the price of raw materials.”

Single-price discounters would be hit especially hard by the VAT increase, he predicted. TJ Morris was not single-priced, but would find it tough to maintain its traditional price points such as 49p, 99p, and £1.99.

TJ Morris had doubled its turnover in the last three years and Morris said it had always been its plan to expand at the current rate. “We’re doing this in a controlled manner, growing at 20% to 25% a year,” he said.

Earlier this year, rival 99p Stores launched a new fascia called Family Bargains with the strapline ‘Big Brands, Small Prices’. Home Bargains’ strapline is ‘Top Brands Bottom Prices’, but Morris said he had not yet decided whether to pursue legal action over the similarities.

“They are as close as you can get to ours,” he said. “But we haven’t taken it any further yet.”

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