UK value clothing retailer Matalan says it has started its financial year with a “solid” set of results, but warned the effects of earlier discounting may have a greater impact in the second quarter.
For the opening 13 weeks of the financial year to 25 May, total revenue rose 2.9% to reach GBP273.5m (US$342m), up from GBP265.9m in the same period last year.
Online revenues grew by more than 30% in the period, while underlying margin and cost performance absorbed a GBP4m currency headwind in delivering profitability in line with last year.
“Although we delivered solid overall results, the market deteriorated significantly through the course of the quarter,” says CEO Jason Hargreaves. “An improvement to the awful spring weather failed to materialise until late June, the May market being one of the toughest we have seen in a number of years.
“As a result, the market began to discount earlier and to a greater extent than expected, and we ourselves had to react and begin promoting season stocks. Whilst having a manageable impact on the first quarter’s results, there will be more significant dilution to margins in the second quarter as we exit summer season.”
Sofie Willmott, lead retail analyst at GlobalData, notes that despite coming up against strong comparatives, Matalan has continued to deliver a positive performance in the first quarter as its value fashion and homewares ranges appeal to consumers who are spending cautiously.
“Matalan’s product offer is well targeted to its shopper base with both clothing and homewares products nodding to current trends while being priced accessibly.
“Despite being a smaller player in the UK clothing market, Matalan is giving value giant Primark a run for its money, continuing to advertise to improve its brand image and using familiar faces to promote its family credentials through TV marketing. Unlike Primark, Matalan is also able to capitalise on retail spend shifting online with its digital channel significantly boosting overall performance.
“With the vast majority of its stores located out of town, Matalan has an advantage over many of its value and mid-market competitors that are closing high street stores at a rapid rate in response to declining footfall and rising costs.
“As retail parks remain a more attractive shopping location with often free parking, an evolving product mix (as clothing and health and beauty players move in) and a growing number of food service options, Matalan is well positioned to weather the challenging UK retail market.”