Matalan - first indications of cost measures

All,

Naturally, there were few news out today given the only recently reported Q4 figures and other news flow surrounding the restructuring.

Matalan are progressing in line with the most recent expectations, except:

1) Matalan has been better able to flex down its cost structure than we had anticipated by some significant £13m (not counting the £4m of hedge unwind that passed through the P&L). The company’s furlough scheme at one point comprised more than 10k employees. For reference, the company only had just under 12k FTEs going into the crisis.

2) The WC impact in Q1 was £14m worse than we had expected.

We note that EBITDA (IAS 17) has been significantly better than we had expected only . 

3) Back then (1.5 months ago - pre Q4 reporting) we had simplistically assumed that Matalan would have been able to draw on an additional £25m RCF already in Q1. 

Crucially, the company remains on track to clear its inventory to roughly 2019 levels at the end of summer. We note here that that is still well above 2019 in relative terms, considering the lower turnover levels, but should be a good result. The latest sales campaign has only just started and the GM will be heavily impacted by the much larger programs compared to other years. Still, in terms of cash management that should keep Matalan in good shape.

In competitive terms, Matalan occupy an attractive value position, more cyclically resilient than other retailers, with many of its locations being in retail parks, where ample space allows for easier Covid-19 precautions and where footfall rebound has been stronger than elsewhere. The kids and household sections naturally show resilience under Covid 19 and ladieswear has been going we’ll. The “dog” this year is really only menswear. Weekly fluctuations aside, "LfL demand” remains strong and provides a sufficiently solid base for above discussed stock clearance. 

Management further outlined measures it is exploring to right-size its cost structure. We are looking forward to hearing more of it, but do not doubt that management can achieve a significant enough reduction to enable the company to carry its cash- paying debt. 

We are therefore remaining long the SSNs.

Wolfgang