Rachel Reeves‘ Budget has been blamed for a £640million hit and falling sales by Poundland‘s owner.
Pepco swung to a pre-tax loss of £457m for the year to September 30, against profits of £131m a year ago after booking the write-down on the discount chain.
It cited a “significant decline in performance in 2023-24 and weaker outlook for profitability amid increasing competitive and cost challenges”.
The group said it was facing a “higher cost outlook in the UK following the recent Budget“, with the Chancellor having announced a bombshell hike to employers’ National Insurance Contributions and a further increase in the minimum wage from next April, set to send employee costs surging.
But trading has also come under intense pressure at Poundland, with like-for-like sales dropping 3.6% over the year due to a poor performance in clothing and general merchandise as the group switched to Pepco-sourced ranges.
Sales since the year end have remained lower, with an “underperformance of all categories”, according to the group.
Stephan Borchert, chief executive of Pepco, said: “At Poundland, recent performance has been very challenging, impacted by declines in clothing and general merchandise following the transition to Pepco-sourced product ranges at the start of the year.
“We are taking swift action to get Poundland performance back on track, focusing on a return to Poundland’s strengths.”
The group said it made the move to shift to Pepco-sourced ranges to help drive scale, increase cost savings and lower prices for customers.
But it admitted: “It became clear as the year progressed that both the planning and execution of this implementation had shortcomings, with gaps in clothing and general merchandise product for the UK customer, impacting revenues and profitability during the year.
“It further became clear that our UK customers had a different expectation of the Poundland brand proposition compared with Pepco customers which has led to a fundamental rethink of approach going forward.”
Annual results showed underlying earnings at Poundland slumped 63% to £23m, but the group’s Pepco brand fared better with earnings up 47%, while its Dealz arm swung back to a profit.
News of Poundland’s woes came a day after Domino’s Pizza Group revealed it is facing a cost hit of about £3m a year from the Budget.
The takeaway pizza chain said last month’s Budget move to increase employers’ national insurance contributions and further increase in the national minimum wage had “significantly increased the cost of labour” for Domino’s and its franchise partners.
It said: “Although we have identified specific mitigation plans, we now believe that the annual impact for Domino’s Pizza Group will be circa £3m per annum from 2024-25 onwards.”
Domino’s announcement came as the firm also unveiled a new five-year profit and sales target agreement with its franchisees.
The chain added that sales have continued to grow in the first nine weeks of its fourth quarter, with total orders up 5.3% and like-for-like sales up 2.7%, ahead of the 0.7% growth seen in the previous three months.