Cheap isn't cheerful: Matalan set to issue profits warning

Matalan is set to become the latest retailer to unveil a profits warning in an already battered sector this week.

Matalan is set to become the latest retailer to unveil a profits warning in an already battered sector this week.

The City is bracing itself for bad news from the discount retailer, which is due to publish full-year results on Wednesday. Pre-tax profits are expected to be in line with consensus forecasts of around £84m before goodwill, up on the £62.7m reported in 2004.

But it is current trading that is worrying analysts. Forecasts range at best from flat like-for-likes to sales being down by as much as 4 per cent.

Iain McDonald, retail analyst at broker Numis Securities, said there had "got to be a risk" of a profits warning from the retailer. He added that he expected to cut forecasts for both Matalan and a number of clothing retailers. Nick Bubb, at Evolution Securities, said expectations were "very low" and lowered his price target from 220p to 200p.

Matalan was one of a handful of retailers to report a healthy festive season, with underlying sales up 5.3 per cent in the 10 weeks to 8 January. That was above forecasts but analysts are now concerned that comparisons with the previous year have become tougher. In January and February last year, Matalan was suffering the effects of a tough Christmas and a sale that dragged on until the end of February.

Changing consumer habits are also likely to have hit home. The high street has failed to recover from a dire Christmas season, and the British Retail Consortium is now calling on the Bank of England to trim interest rates to get shoppers spending again.

A number of retailers have issued profits warnings in recent weeks, including DIY chain Kingfisher and Boots. Any profits warning from Matalan, which is 52 per cent owned by the chairman and founder, John Hargreaves, would be its third in 18 months.

Matalan chief executive John King has spent the last year turning the business around, and told The Independent on Sunday in January that he would grow the business now the recovery had been nailed down.