Matalan - Hidden Gems

All,

 The call was quite positive, but was long and most analysts (this one certainly) was close to taking a nap when management finally made a few comments on current trading. There were some important statements:

 1) In the five weeks since the phased reopening began, LfL store sales have been +20% including 2-3 weeks with full-price sales in ladieswear. Per the 5th of June update that number was only 14.6%. So that’s a positive development.

2) All but 5 stores are now open.

3) Management is confident that they will sell through the entire SS collection by the end of the season and end with a flat stock position. So no trapped liquidity at the end of summer and a smaller write-down than we had assumed.

4) Childrenswear and ladieswear are going very well. Homewear is performing well enough and Menswear needs to be actively promoted. This is better than expected, as ladieswear represents a bigger segment than homewear (we thought homewear was going to do better and ladieswear less so).

5) The company will not be opening further UK stores this year to save on CapEx, but is planning on opening more stores in the UK  from next year again.

6) Stock liquidation events have seen twice the volume of last year, but management stopped short of giving us enough datapoints to verify our projected sales and therefore GM levels any further.

 Conclusion:

- We have to increase our projected cost of sales for Q2 to reflect the entire SS collection being sold within summer. 

- The high LfL figure also suggests that we need to adjust sales upwards. 

-> So Gross Profit will be better than model, which should translate through to cash.

 We will update the model in due course, but remain long the SSNs.

 Wolfgang