Poundland’s 20pc fall on festive fears

SHARES in Poundland fell 20pc after the discount retail chain warned of volatile trading ahead of the crucial festive period.

Chief executive Jim McCarthy spooked the market by admitting that third-quarter sales are not following the usual trends for this time of year. He said: ‘We have seen highly volatile trading conditions so far.’

The bad news came as half-year profit fell to £5.2m for the 26 weeks to September 27 from £9.3m for the same period last year.

The firm had warned in September that profits would be hit due to the timing of a raft of new store openings – 55 in the past six months compared with 34 opened in the first six months of last year.

The shares fell 55.9p to 222.7p on the lacklustre update.

Poundland has been riding high on a change in shopping behaviour in favour of discounters but analysts now question whether its strategy of offering items at just one price is flawed.

Kate Calvert, an analyst at broker Investec, said: ‘Question marks over the sustainability of a fixed price model and the underlying Poundland estate are likely to remain.’

McCarthy says it has successfully sold items for £1 for the past 25 years and there is nothing wrong with the strategy. Total sales rose to £561m from £528m although sales from stores open for more than a year fell 2.8pc.

In September it launched a £50m share placement to fund its £55m purchase of smaller rival 99p Stores after receiving clearance by competition regulators in a process that has dragged on since February.

Since that period trading at the 251 99p Stores deteriorated and McCarthy is accelerating plans to turn them into Poundland shops.

About 20 have been converted with a dramatic improvement in performance. McCarthy said about £25m would be added to earnings from 99p Stores and he did not rule out further acquisitions.