Matalan profits slide after £20m write-off

Matalan, the value clothing retailer searching for a new chief executive, admitted yesterday it had wasted £20.4m on software it did not need as part of a £50m overhaul of its IT systems four years ago. Writing off the sum exacerbated a dire year for the group, which saw its pre-tax profits more than halve to £36.3m.

Phil Dutton, the finance director, said the company had "made a mistake in hindsight" in opting to replace its replenishment and merchandising system. Instead of switching, it now intends to keep the existing system and has written off the £20.4m it has spent in the process. The company is considering legal action over the advice it received.

Even excluding the software hit, pre-tax profits fell by almost one-third to £56.7m reflecting lower sales of its clothing and poor sales of its homeware ranges, which are being completely revamped. Underlying sales fell 6.9 per cent last year, although the gross margin edged higher.

Analysts said Matalan was suffering from tough competition at the bottom end of the clothing market. In the past two months underlying sales at Matalan fell 2.2 per cent, despite weak comparatives. Its shares slipped 6p to 192p.

John King, the outgoing chief executive, sought to defend his three years at the helm despite the dwindling profits. "If I look back over the last three years ... overall the business is in a lot better shape. Behind the scenes, what frustrates me is an issue here, an issue there. That's a fact of life. The business has lost its unique advantage of being a market creator 20 odd years ago. The market is now a lot more crowded," he added. Matalan is believed to be some way off announcing Mr King's successor.