British discount retailer Poundland warned of volatile trading in the run up to Christmas after its first-half profit fell by more than a quarter, hammering its shares and raising questions over the longevity of its single price model.
Shares in Poundland, which listed in March last year at 300 pence and purchased rival 99p Stores for £55 million in September, fell up to 23 per cent on Thursday.
With recession-era shopping habits entrenched, discount retailers in general merchandise and food, have won market share from Britain’s supermarkets. But Poundland differs from its rivals because it sells everything for a pound.
“Sales comparables in the second half are softer and our Christmas range is our best ever. However, we have seen highly volatile trading conditions so far in the third quarter,” chief executive Jim McCarthy said.
“It is a shape that we haven’t seen before,” the CEO told reporters, noting that other retailers were experiencing similar patterns.
Separately on Thursday official data showed British retail sales fell more than expected last month after surging in September, hurt by the biggest drop in food store sales since May 2014.
Investec analyst Kate Calvert said Poundland's current trading was clearly weaker than expected.
“Question marks over the sustainability of a fixed price model and the underlying Poundland estate are likely to remain,” she said.
Mr McCarthy said he was hopeful trading would normalise after “Black Friday” on November 27, when British retailers cut prices to try to drive sales ahead of Christmas.
He attributed the first half profit fall, already flagged in June, to 55 stores openings in Britain and Ireland compared to 34 in the corresponding period last year, and tough comparative sales numbers due to a late Easter and the loom bands craze.
While inflation can challenge the Poundland business model, Mr McCarthy has said it is a myth the company cannot keep selling product for £1, something it has done for 25 years.
Poundland made a profit before tax and one-off items of £9.3 million in the six months to September 27. Total sales increased 6.2 per cent to £561.1 million but were down 2.8 per cent at stores open over a year.
McCarthy expects analysts’ average profit forecast for the full 2015-16 year to edge down from £46.5 million prior to Thursday’s update to reflect recent moves in the euro.
The 99p Stores deal added 252 stores to about 600 Poundland stores in the UK and nearly 60 shops in Ireland and Spain that trade as Dealz.
McCarthy said it would add at least £25 million to core earnings. The vast majority of the 99p Stores estate would be converted to the Poundland format by April 2016.
Poundland increased its UK and Ireland store target from 1,070 to 1,400.
Poundland shares were down 47.7 pence at 229.8 pence by 11.10 GMT.
