Second profit warning from Instore as sales dip again

Instore, the owner of the discount chain Poundstretcher, issued its second profit warning in two months yesterday after a "significant shortfall" in sales volumes in November.

The company said its poor performance last month would result in annual profits being "materially lower" than current market forecasts of about £7m in losses. Analysts suggest the figure may be nearer £9m or £10m. Last year, Instore posted full-year pre-tax losses of £3.3m.

This is the third warning from high-street retailers in the run- up to the key Christmas period. Both HMV and Woolworths have recently issued profits warnings on the back of poor sales.

Poundstretcher said sales have been hit by difficult market conditions, along with problems at its distribution centre because of the introduction of new merchandise management software. This was introduced in September as part of a systems upgrade, but the problems have now stabilised, Instore said.

Meanwhile, there is better news in recent trading. Like-for-like sales in the two weeks to 16 December were up by 1.9 per cent. In the year to date, like-for-like sales increased by 4.6 per cent.

"Christmas trading is, as always, very important to the full-year outcome," Instore said.

Richard Ratner, an analyst at Seymour Pierce, with a hold rating on the stock, said that thanks to the chief executive, Trevor Coates, who took up the post in March, it is not all bad news for the company. "The stock is cleaner and leaner and the cash position is good," he said. "Thus, with a very determined manager in Trevor Coates, we leave 2008's forecast unchanged at a profit of £1m. If it is capable of being got right, Trevor is the man to do it."

Mr Coates, who proved his abilities in discount retail at Aldi, abandoned plans by his predecessor, Angus Monro, to convert all the Poundstretcher sites to the Instore brand.

The warning initially wiped 28 per cent off the shares yesterday morning. However, they recovered to end the day flat at 18p.