Shares at Dealz owner Poundland tumble 22pc as profits slide by over a quarter
Poundland, which trades under the Dealz brand in Ireland, has seen a steep decline in underlying pre-tax profits, despite its recent acquisition of 99p Stores.
The announcement caused shares to tumble by 22.5pc this morning - its worst day since it floated on the stock exchange in March last year.
The bargain retailer blamed tough comparisons with last year, including a late Easter and the end of the Loom Bands craze, for the slide in underlying pre-tax profits of 26pc to £9.3m, from £12.6m in 2014.
At its peak, the discounter was selling 728,000 of the plastic bracelets a week last year before the craze dropped in the summer to just 2,000 - with overall sales at Poundland slowing as a result.
Like-for-like sales were down 2.8pc in contrast to a 4.7pc rise last year, however total sales were up 6.2pc to £561.1m - compared with £528.2m last year.
Poundland also warned that the new national living wage will cost it £4.3m in the 2017 financial year. Its chief executive Jim McCarthy told BBC Radio 4's Today programme that "the majority of our employees will be impacted by the national living wage".
The new wage will require employers to pay £9 per hour by 2020. The first stage increase to £7.20 per hour will take effect from next April.
Mr McCarthy added that it would affect the company's cost for the "first few years" but said the retailer was spending £2m in steps to mitigate the impact, such as trialling hybrid checkouts and installing LED lighting to make efficiency costs.
The retailer bought its rival 99p Stores' 250 branches for £55m in September, adding to its 600-odd stores. It plans to have all 99p Stores converted to the Poundland format by April 2016, sooner than originally planned, after seeing "encouraging" sales uplifts in the converted stores.
Despite the fall in its underlying profits, it expects to open 70 new stores in the UK & Ireland in the next financial year. It is also increasing its overall store target from 1,070 to 1,400.
Meanwhile current trading was "highly volatile", Mr McCarthy added, meaning that the third quarter's performance "depends more than ever" on the last six weeks towards Christmas.
Earlier this week discount chain B&M reported a rise in profits by a quarter over the last six months on the back of a rampant expansion plan.