Matalan sees profits drop but remains confident

DISCOUNT retail chain Matalan saw its pre-tax profits drop by 29% to £72.8m in the year to February 28 as its sales dropped slightly to just below £1.1bn.

The firm blamed a “challenging” market for the decline and the “unusually heavy snowfall” which impacted on its trading, particularly in some of its out-of-town stores which were more difficult to reach.

However, it added that it had embarked on a promotional strategy in a bid to sell off stock which meant that it finished the year with “low terminal stock”.

The Skelmersdale-based firm, which completed a £300m refinancing of its debts in April 2011 after its year-end, also paid out a £60m dividend to its shareholders – principally members of the family of Matalan’s founder, John Hargreaves.

During the year, the firm opened seven new stores at Macclesfield, Newbury, Norwich, Bridgewater, Chesterfield, Bishop Briggs and a new concept store at High Wycombe. It also closed two of its clearance store outlets.

A report accompanying the company’s newly-filed accounts at Companies House prepared by acting chief executive Paul Gilbert said the firm plans to open six new stores in its new financial year and will concentrate its efforts on “larger population areas where we have historically not had a presence”.

A franchise deal in the Middle East will also see the firm open new outlets in Abu Dhabi, Dubai and in Jordan this year.

Gilbert added that its website had grown “rapidly” and was now its largest store.

“Online sales represent a significant opportunity for future growth,” he said. “With online, we target more fashion-conscious customers, with only a limited range of our more basic products, leading to significantly higher average basket values for Matalan online.”

However, the firm sounded a note of warning about the outlook for 2011, citing pressures on consumer’s disposable income both from increased VAT rates and public spending cuts. It also said that like other retailers, it was facing cost pressures due to higher raw materials, labour and transport costs.

Despite this, it added that it remained confident about its future fortunes and believes there is “significant scope for like-for-like growth”.

“We believe that the UK value sector will remain resilient and that Matalan is well-placed to meet these challenges as the UK consumer continues to to embrace the relevance of Matalan’s offer,” said Gilbert.