Matalan: trading statement

7:40 a.m. Thu 06 Jul 2006

So far this year Matalan has experienced a 1.1% like-for-like decline in sales, and with more closures than new space opening total growth fell 1.5%.

Performance improved over the last few weeks and like-for-like growth is not close to flat. However, as before , Matalan seems to be trading sales growth against margins and the improvements to gross margin have slowed - the improvement was on 0.4 percentage points so far this year, compared to 1.5 for the same period last year.

We expect gradual improvement but Matalan looks likely to take a long time to recover to former levels - if it ever does, which we doubt given how competitive the discount clothing market now is.

At 174p Matalan is trading on a prospective PE of 17× with a 5.1% yield. This is expensive against both the market and the sector and Matalan does not seem to have the bright prospects for growth needed to justify this.