Matalan - comment

Matalan's results were right on target. Despite a tough UK consumer environment, the company is achieving positive LfL sales in unrefurbished stores of approx. 1.3%, whereas the 10% of store base refurbished p.a. delivers 8-8.8% LfL growth on a  56% Gross Margin. Stock is clean, and USD is favourable. Market share is slowly expanding across all divisions - more in volume than in value, but positive throughout. Even though we had adjusted our forecast for the 1-week difference vs last year's Q2, revenues were some £4m lighter than model. However, EBITDA was right on target, and the WC corrected from last quarter's result, putting the cash balance at £80m, some £5m stronger than expected. The launch of the AW collection went to plan, but ran into warm weather. However, management feels encouraged by results so far. We remain long this strong execution in a tough market, even as the company is looking forward to a heavier round of investment in the next two years - in itself a very positive signal from the shareholding funds. If Matalan can continue to execute on our forecasts, we can look forward to an orderly refinancing/sale.