Poundland sales pass £1bn barrier as 99p Stores deal hangs in balance

UK discount retailer Poundland has reported more than £1bn of sales for the first time as its takeover of rival 99p Stores hangs in the balance after competition authorities warned the deal could harm consumer choice.

The retailer, which sells consumer brands from cleaning products to confectionary at the knockdown price of £1, said full-year sales had risen 11.4 per cent to £1.11bn, driven by the opening of 60 new stores in the 12 months to March 29.

Jim McCarthy, chief executive, said that trading on the UK high street had been "tough" but that the retailer had a "strong" pipeline of new store openings for the current financial year.

"We expect to continue to deliver our growth strategy in the new financial year, notwithstanding some headwinds from a weaker euro and a tough comparable in the first half," he said.

Like-for-like sales at stores open for more than a year rose 2.4 per cent year-on-year as Poundland said that underlying pre-tax profits would be in line with market expectations of £43.8m.

However, the fast-growing single-price retailer said that store openings had continued to be slow in the final quarter, resulting in 10 fewer stores being opened over the year compared with the previous financial year.

Since 1990 the discount retailer has opened almost 600 stores in the UK, Ireland and in Spain, where it opened its first shop last year. However, it was forced to trim sales growth expectations in January despite a record Christmas after failing to expand its estate as quickly as forecast.

Poundland's rise, along with other hard discounters Aldi and Lidl, has helped transform shopping habits in the UK and heaped pressure on the big four supermarkets, including Tesco and Sainsbury.

Grocery prices are 2 per cent lower than they were last year, according to Kantar Worldpanel, the market research company, as the large supermarkets cut prices in a bid to remain competitive with fast-growing discount chains.

Poundland, which floated in March last year with a £750m valuation, is attempting to buy rival 99p Stores for £55m.

But the chain is facing an in-depth investigation into the planned acquisition unless it provides acceptable remedies to the UK competition regulator's concerns.

The Competition and Markets Authority said last week it was concerned that the merger would reduce competition in the market, particularly in the 80 local areas where the two companies have competing stores and 12 areas where they would be future competitors.

99p Stores has a total of 251 shops, primarily in the south-east of the UK.

"The loss of competition between the companies may lead to a worsening of their offer locally," said the CMA.

Poundland, which said the deal would "provide better choice, value and service for 99p Stores' customers", has until April 16 to respond.

It could agree to sell off parts of the combined company's estate, leave the deal unchanged for an in-depth investigation, or pull out of the deal. Poundland said it would "make a further announcement in due course".

It plans to open a further 60 stores in the current financial year in the UK and Ireland, where it trades under the name Dealz, and another five in Spain.

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