Poundland keeps trading down

Management already revealed that the discounter suffered at the hands of heavy promotional activity early in the festive period when it released half-year results back in November. While other retailers typically receive a one-off sales boost from the promotional bonanza known as 'Black Friday', Poundland sales receive no such surge. This is an inherent weakness for retailers who play the discounting game all year round: there's scant room for additional competitiveness when sale time comes around if you charge only £1 or less for products and can't offer customers any form of competitive multichannel access to goods.

Acquisitions and promotional activity aside, momentum across the existing core business is also slowing at Poundland. Like-for-like sales fell 2.8 per cent during the first half of the financial year due to tough comparative figures and the timing of Easter. Costs associated with the 99p Stores acquisition and the group's Spanish pilot led to a 26 per cent crash in first-half underlying pre-tax profit to £9.3m. In reaction, analysts at Investec cut pre-tax profit forecasts for the year ending March 2016 by a fifth to £36.1m, equating to EPS of 11p and further big downgrades to £29.8m and 9.1p followed this month's third-quarter trading update.

Bosses blamed the third-quarter woe on a tail-off in high-street footfall and adverse weather conditions, made even more worrying by the fact that the Christmas and Halloween product range was considered the "strongest ever". Total sales growth was good, but it looks as though this is down to the acquisition and store openings, with analysts estimating a drop of between 4 and 5 per cent in the third quarter on a like-for-like basis. Indeed, despite trying to integrate the 99p deal, Poundland opened 14 new sites during the third quarter and plans to spend more money opening 70 new shops this year and 60 more in 2017.

City analysts are generally confused on the 99p acquisition. Of particular concern was a fall in 99p's stock levels due to a withdrawal of credit insurance while clearance for its takeover was sought from competition authorities. In short, the 99p business looks a mess. Only a small proportion of 99p stores - roughly 25 out of roughly 250 - have been converted to Poundland fascia, and while bosses say initial sales uplifts from the conversions are encouraging, there's clearly a lot to do. An update on synergies between the two businesses is expected in June. Chief executive Jim McCarthy has admitted the former owners "took their eye off the ball" once the deal was signed, which led to supply issues ahead of the crucial Christmas trading period.