Matalan shares drop 16% as sales disappoint

Shares in Matalan, the discount retailer, fell to their lowest level for nearly two years yesterday after the company disappointed the City with a sharp slowdown in sales growth.

Matalan shares fell 16 per cent to 362p, less than half their 800p peak a year ago, when the former stock market star revealed that like-for-like sales growth had been badly affected by the terrorist attacks on the United States.

Like-for-like sales in the nine weeks to 27 October were up by 5.2 per cent on the same period last year. This compared with 10 per cent growth in the six months to 25 August.

Ian Smith, finance director, said sales had been very strong in the first part of September but "fell off a cliff" after the attacks on the Twin Towers. Underlying sales were negative in October and have only just started to recover in the past few days.

Analysts were disappointed by a 0.4 per cent fall in the gross margin due to the increased proportion of lower margin homewares in the sales mix. There was further surprise over the rate of cannibalisation of existing stores in towns where Matalan had opened a further branch.

The company denied it had suffered from a management vacuum at the top following the departure of Angus Monro as chief executive in May. His replacement, the former Asda chief executive Paul Mason, will not start until January. Meanwhile, John Hargreaves the company's founder, chairman and acting chief executive, will be out of action for up to a month following an operation on his back two weeks ago. He missed the analysts' briefing yesterday and is expected to rest for another two to three weeks.

Mr Smith said: "I don't think it had anything to do with it. We have a strong team at Matalan."

Analysts said Matalan's reputation, which was hit hard by a shock sales warning in January, would suffer further. Nick Bubb at SG Securities, said: "In the past Matalan has been able to buck the trend but there have been too many shocks from the company this year and people will be looking around for what else could go wrong."

The slowdown in current trading overshadowed a 40 per cent rise in half-year profits to £49.4m in the six months to 25 August. Turnover rose by 50 per cent to £385m. The company has opened 17 new stores since February.