Instore set to benefit from financial bad weather

POOR weather and rising energy costs may have affected profits but low cost retailer Instore said it is set to benefit from the current economic storm.

The Huddersfield-based firm, which also owns the Poundstretcher and Ponden Mill brands, said today that although the first half of the financial year had been challenging the group had made good progress “on the path of restoring robust profitability”.

Total sales in the 26 weeks to August 30 were £135.8m an increase of 1.5% against the £133.8m achieved in the same period last year.

Within this total like-for like sales showed a small decline of 1.4%, reflecting the unfavourable weather during the first quarter.

Cost of sales before exceptional items increased to £124.6m (2007: £120.7m) as a direct result of better achieved margins due to a reduction in markdown spend and improvements to shrinkage results, offset by a significant increase in retail costs, as a result of required investment in the store network and increased energy costs.

As a result, gross profit before exceptional items has declined to £11.2m (2007: £13.0m) decreasing gross profit margin to 8.3% (2007: 9.7%).

Earlier this year Seaham Investments, a wholly owned subsidiary of Crown Crest Group, bought a 56.89% stake in the business beating off other investors stalking the then troubled group.

The company said that it was continuing to introduce changes to improve the performance of the business as quickly as possible including driving footfall to its food and toiletries offers.

It has also invested in giving some of its stores a face lift – a programme that will continue over the next two years.

However, its property strategy continues to reflect a prudent view towards estate expansion.

In the first half, Instore opened two stores and closed four, giving a total of 303 Poundstretcher and Instore outlets.

Instore said that once the company has been restored to a profitable position it will look to increase its store network particularly in its Northern heartland.

It added that the acquisition and integration of the Ponden Mill business was also proceeding well and that a decision had been made to close 14 of the 33 stores.

The remaining 19 are largely on factory outlet locations and Instore is confident about their trading prospects. The stores and the product are also to rebranded as Coloroll. In addition to the retail channel the group is investigating opportunities to license or wholesale the brand to other retailers.

Commenting on the results, Peter Burdon, chief executive of Instore, said: “Comparable trading in the first half was tough as a result of the weather being considerably worse than the spring and early summer of last year. In addition, increased energy costs brought a further challenge for the business.

“Nevertheless, the continuing improvements in the offer, investment in the stores and the efficiency of the business is starting to be reflected positively in our trading performance.”

He added: “The economic climate brings opportunities as well as challenges. Consumers of all demographics are keenly seeking value and we are well positioned to take advantage of this trend.

“Plans for Christmas have been well laid and, although we remain cautiously confident, the full year outcome is dependent on this key trading period.”