(Debtwire) Matalan LTM earnings climb enhances medium-term bond refi prospects but cashflow a concern

28 Jan 2026 | 12:12 GMT

Matalan’s annual interest costs and capex requirements are pressuring cashflow. However, earnings growth improves the likelihood of a refinancing down the line, according to a buysider and one independent special situations desk, with a second buysider cautious.

The UK-based retailer reported 3Q25/26 results including financial statements for the quarter-end 29 November 2025 on 19 January.

Earnings momentum is gathering pace. The company’s pre-IFRS 16 EBITDA for 3Q25/26 was up 38% YoY to GBP 27.4m as post-IFRS 16 EBITDA of GBP 50.3m was also up 17% YoY.

Matalan’s unrated GBP 195m 10% senior secured 2028s are indicated at 72-mid with a 29.6% yield on IHS Markit, up versus 68.5-mid rough levels on 16 January ahead of the results.

The company has guided for FY25/26 pre-IFRS 16 EBITDA (fiscal-year end February 2026) to be in the GBP 65m-GBP 70m range, though this would mean a likely soft upcoming 4Q25/26 given LTM 3Q25/26 pre-IFRS 16 EBITDA is GBP 77.1m.

Matalan also disclosed post-quarter-end trading for December 2025 in its 3Q25/26 investor update, reporting pre-IFRS 16 EBITDA of GBP 16m, GBP 4m lower year-on-year. The variance reflects calendar effects, including an additional trading week falling in 2Q26/27 and Black Friday being recognised in 3Q25/26 this year, versus 4Q in the prior-year comparable period. November and December 2025 combined delivered like-for-like revenue growth of 1.3% while there was a strong start to post-Christmas seasonal sales. Early sales of new Spring ranges have also been encouraging.

Matalan has delivered strong growth in recent quarters as its LTM 3Q25/26 pre-IFRS 16 EBITDA of GBP 77.1m is up versus GBP 46.2m at LTM 3Q24/25. The uptick in earnings has meant the company has been able to deleverage strongly, reducing net leverage to 3.6x at 3Q25/26, versus 5.8x one year back.

Matalan has guided for FY26/27 pre-IFRS 16 EBITDA in the GBP 85m-GBP 90m range which marks an uptick versus its FY25/26 pre-IFRS 16 EBITDA guidance of GBP 65m-GBP 70m.

The company aims to improve margins through greater sales volumes as well as new store openings, supplier rationalisation and improved currency rates with controlled markdowns. Matalan will face earnings headwinds from inflationary pressures and overhead costs.

Matalan is accelerating its capital investment plans, and 40 extra store refreshes are planned for 1H26/27. Matalan noted in its 3Q25/26 investor presentation that while cash reserves and liquidity are strong, the company accelerated capital investment and greater working capital commitments require extra funding in FY26/27. Meanwhile, talks have progressed with anchor investors over the optimal capital structure for this funding, according to its investor presentation.

“Matalan is doing better. This has been on the cards for at least two quarters already. Matalan can’t refi in the high yield market now but if it hits its earnings targets then it can probably refi early next year,” independent special situations desk Sarria said. “With bonds indicated around 75 cents on the offer, the SSNs could finally pull-to-par. It’s true that the company might incur more super senior debt in front of you to fund capex investments, but that grows the business and therefore earnings.”

One buysider noted the company can cut its cost of debt with a refi, adding that Matalan is turning operations around.

The company was free-cashflow negative in FY24/25 due to its high interest costs. In FY24/25, it generated pre-IFR 16 EBITDA of GBP 56.1m but faced GBP 17.3m capex, GBP 71.4m net interest and minimal cash taxes which meant rough estimates of GBP 32.6m of negative free cashflow ahead of working capital swings.

Matala bamba

The company 3Q25/26 online performance is offering green shoots. Online sales rose 11.4% YoY on a like-for-like basis in 3Q25/26 (see chart below) with like-for-like growth every month. Performance was also encouraging in November due to Black Friday promotional activity.

Source: Matalan 3Q25/26 investor presentation

Matalan’s 3Q25/26 results were presented by Executive Chair Karl-Heinz Holland and CFO Dave Williams. The company in October 2025 announced Henrik Nordvall as its new CEO. Former CEO Jo Whitfield departed Matalan to join UK supermarket Asda’s board of directors in February 2025. Whitfield was appointed as Matalan's CEO in March 2023, along with Karl-Heinz Holland as Chair. Holland spent 23 years at discounter Lidl and was also CEO of Spanish discount food retailer DIA (Distribuidora Internacional de Alimentacion), and since May 2018 had been Chairman of German discount retailer Takko.

Matalan improved earnings through better gross margin performance as 3Q25/26 gross margins of 55.3% are up versus 51.8% at 3Q24/25. The company has benefitted from supplier negotiations, has contracted freight rates in place, and received a boost from currency gains even if there were markdowns in the quarter due to discounting and Black Friday being included in 3Q25/26 versus it being included in the 4Q in the prior comparable year period.

The company had a GBP 103.2m cash balance reported at 3Q25/26.

Bond buybacks are also an option. The company completed a GBP 5m acquisition and cancellation of senior secured notes in September 2025 and notes in its 3Q25/26 financial report that it may seek to retire or purchase outstanding debt through cash purchases, including in open market purchases or privately negotiated transactions.

“The company has been buying back some bonds in secondary. The cash position is good with while it has closed non-profitable stores and invested on expanding new stores,” one buysider said. “Online is still bad, but the company strategy on logistics and procurement is working with quality of fabrics, a push higher in prices and a loyalty card program. The company has better quality products and has reduced leverage. Since the Summer the company had a meaningful improvement in gross margins, and it has appointed a new CEO.”

Sarria noted that putting merchandise into its stores early in the season will increase commercial risk a little but stressed that this does not make Matalan the same as peer New Look.  Sarria added that the business is “coming out of its shell”, describing the strategy as a return to what Matalan should have been had it taken greater commercial risk in prior years.

“There is more to it than meets the eye, but the strategy makes sense and the new CEO should give us further confidence,” Sarria said.

Matalan on 10 April 2025 announced the issuance of GBP 25m in additional 10% super senior secured 2027 notes and made amendments to bond indentures. A purchase agreement was made with anchor investors, including Invesco, Tresidor, Man Group and Napier Park, with the funds purchasing the notes, which were fungible with the existing super senior notes.

Indenture amendments included extending the super senior note maturity to December 2027 from January 2027, and extending the maturity of the priority notes to December 2027 from July 2026.

The group also negotiated a change to loan-note indentures increasing the level of pre-approved permitted debt basket capacity up to GBP 60m, allowing a further GBP 35m to be sourced on top of the GBP 25m already drawn funding, according to the FY24/25 financial report.

Matalan in January 2023 finalised its recapitalisation backed by a bondholder group representing over 70% of the outstanding First Lien Secured Notes – led by Invesco, Man Group, Napier Park and Tresidor – who took control of the business. The agreement followed the conclusion of the strategic sales process launched in September 2022.

“The low leverage is manageable, but the name has restructured before. The company will need to keep net leverage down and having such high interest costs despite low leverage is unusual. The company is still free cashflow negative but used to have a much higher EBITDA,” a second buysider said. “The company is coming from a low base and I’m concerned given there had been the structural decline for a while. We’ve analysed profitability per square foot since 2005, and rent is high while this metric has been getting worse.”

The Matalan 3Q25/26 capital structure is broken down below (see Debtwire analyst calculations).sa

Matalan declined to comment beyond its recent press release.

by Adam Samoon and Priyanka Kotadia