Poundstretcher shares shrink after dismal Christmas sales

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The Independent Online

Christmas never came for Brown & Jackson, the owner of the Poundstretcher stores, which yesterday told investors to forget about a recovery this year after warning that a dire December would wipe out annual profits.

Shares in the discount retailer, headed by the former Matalan boss Angus Monro, collapsed on the news, crashing 26 per cent to 63.5p. It was the group's second profits warning in three months, raising questions about Mr Monro's retailing prowess.

Mr Monro took the blame for the group's 8.5 per cent like-for-like sales shortfall in December on the chin, confessing to basic retailing errors such as running out of Christmas trees. He said the company's buyers had made mistakes by forgetting Poundstretcher's downmarket roots and not ordering the right goods. "It's Sod's law we made some mistakes by missing out on a number of areas such as Christmas decorations."

Gifts, toys and confectionery were also weak, he said, adding that competition from Woolworths, its main rival, and Argos, the catalogue shop owned by GUS, had been "intense". But he added: "In the main it was down to ourselves; I'm not blaming the market or the competition."

The company's profits warning buoyed shares in Woolworths, which is widely believed to have had a disappointing Christmas. The pick'n'mix retailer's shares rose 3 per cent to 45.25p.

Brown & Jackson said that December's "difficult trading", particularly in its older high street estate, meant it was unlikely to report a profit in this financial year. The City had been forecasting pre-tax profits of up to £10m. It also warned that its recovery programme had been delayed by a year.

Paul Smiddy, an analyst at Robert W Baird Securities, said: "Frankly, I'm surprised so much profit has gone down the Swannee in the space of two months. That's a level of operational gearing that is astonishing by retailing standards."

Nick Bubb, at Evolution Beeson Gregory, was slightly more forgiving. "Angus is a detail guy, so maybe he forgot about the big picture. I would give him the benefit of the doubt. This is a big opportunity for people to get in [to the stock] at a lower level."

Mr Monro, who shot to fame by building up Matalan from a small Northern company into a stock market star before a profits warning knocked it from its City pedestal, said he was still confident he could turn the troubled group around. "I have no doubt that we will deliver great things. That's why I'm a major investor."

Mr Monro, who is paid a flat rate of £300,000 per year and has no pension or bonus entitlements, spent £6m of his own cash building up a 10 per cent stake in the company (at 34p per share) before he joined.

Although underlying sales for the 13 weeks to 3 January fell 6.3 per cent, margins were 1.4 per cent higher, benefiting from the group's poor promotional stance. The one positive was that like-for-like sales at the company's seven new "instore" concept outlets rose 13 per cent over the same period. It plans to convert all the Poundstretcher sites to "instores" over the next three years.