Smart Matalan is all priced up
Thursday 11 March 1999
Floated at 235p last May, the shares have soared since. They surged another 21 per cent to 551p yesterday on the back of a bumper set of results that confirms the company's entry into the FTSE 250. Underlying full-year profits rose 89 per cent stripping out pre-float costs. Excluding new selling space, like-for-like sales rose by 5.9 per cent.
The story in current trading is even better, with an 18.5 per cent like- for-like sales rise in the first nine weeks of the current year. The company admits this is unsustainable, for several reasons. One was an advertising campaign last autumn that drove sales substantially higher. Another is a later start to the winter sale. Even so, the performance is impressive.
Matalan is an unusual concept whose keen pricing - shirts at about pounds 7 - has a ready market in these value-conscious times. Based on Wal-Mart, the US retail warehouse phenomenon, Matalan was founded in the mid-1980s in Manchester by John Hargreaves.
The aim is for prices to be half those on the high street, with suits for pounds 72 and white T-shirts for pounds 3. Prices are kept down by buying direct from factories off-shore, mostly in Asia. Customers are encouraged to pay pounds 1 to become a member, entitling them to regular mailings and special offers. Matalan's database has 3.4 million active members and the company wants to use the information to start a financial services business and go into mail order. Having kept a low profile in its North-west stronghold as it perfected its model, it has expanded to 86 stores, with 23 new openings last year.
It chooses low cost out-of-town sites, sometimes in retail parks but often in "off-centre" destinations. The aim is to have 200 stores in five to 10 years, with more in the South-east.
However, analysts say much of the good news in already in the price. Supermarket operators are expanding their clothing operations and the price gap is narrowing. On SG Securities' current-year forecast of pounds 29.9m the shares trade on a forward multiple of 23. That is a premium to Marks & Spencer and Debenhams. It has been a stellar performance, but this is not the time to chase the shares.
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