S&P issues warning over Matalan debt and profit slump

Ratings agency Standard and Poor’s (S&P) has brought the future of clothing retailer Matalan into the spotlight after raising concerns about the Lancashire firm’s £500m debt.

S&P said it is lowering Matalan’s long-term credit rating after the chain, headquartered in Skelmersdale, reported a 90% drop in earnings during Q2.

The firm, according to a report in the Telegraph, attributed the results to operational issues at its Knowsley warehouse.

The company’s earnings dropped from £21.9m last year to just £2.3m in the second quarter.

The Telegraph further reported that Matalan has carried a considerable debt since the company’s founder, John Hargreaves, used bond refinancing five years ago to take out a dividend of £250m after failing to sell the 200-store business.

Today, the retailer has debts of almost £500m.

S&P said: “We consider that Matalan faces a risk of its capital structure becoming unsustainable over the long term if the company is not on track to overcome the operational setbacks and restore its earnings to historical levels in the next 12 - 24 months.

“We are revising our assessment of Matalan’s risk profile to ‘vulnerable’ from ‘weak’ and its management and governance practices to ‘weak’ from ‘fair’.”

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