Poundland sold to Gordon Brothers for €1

(Sharecast News) - Struggling discount retailer Poundland has been sold for a nominal amount to US investment firm Gordon Brothers, it was confirmed on Thursday. Warsaw-listed Pepco Group, which has owned the UK retailer since 2016, did not reveal how much it had been sold for.

However, according to multiple media reports, it was for a nominal €1.

Pepco's secured loan of £30m, along with other unsecured loans, will remain in place between Pepco and Poundland, however, as well as an overdraft of up to £30m.

Poundland has 825 UK stores, and employs around 16,000 staff. But it has struggled to compete with a surge in competition in the discount sector. Underlying revenues over the Christmas quarter fell 7.3%

It also faced a hike in costs this year, following the rise in employers' National Insurance contributions and minimum wage in April.

Pepco said the sale was part of its strategy to operate under a single brand and move away from fast moving consumer goods in favour of higher margin clothing and general merchandise ranges.

In the last financial year, Poundland contributed 33% of group revenues, but just 5% of earnings.

Stephan Borchert, chief executive, called the sale an "important milestone".

He continued: "This transaction will strongly support our accelerated value creation programme, by simplifying the group and focusing on our successful Pepco business."

Mark Newton-Jones, head of Gordon Brothers' Europe group, said: "We believe Poundland is an essential retailer serving UK consumers and plays an important role on the high street."

Gordon Brothers, which used to own Laura Ashley, said it would invest up to £80m to help turn the chain around. But a number of stores are expected to be closed as part of the turnaround plan.

Russ Mould, investment director at AJ Bell, said: "This is likely to be the precursor for a major restructuring of the discount chain, and is almost certain to result in hefty job losses as stores are shuttered.

"Poundland has become an increasing financial burden for its Polish owner, so its decision to sell is unsurprising.

"Efforts to launch larger stores and move more into the groceries space don't appear to have work. Taking on stores in the wake of the collapse of Wilko doesn't appear to have paid off either, and whether the brand still resonates sufficiently with shoppers to rebuild after a period of consolidation is open to question."