Paperchase profits hit by closure of Borders

Despite the closure of Paperchase’s 44 concessions in Borders stores, revenue increased 12% to £69m in the year to January 30.

Pre-tax profits slumped 38% to £4m as the retailer contended with the Borders administration in November 2009 and volatile exchange rates.

Paperchase’s profit figure includes a write-off charge of £382,000 for the “tangible fixed assets” in the closed Borders UK and Books etc stores. Profits also took a £1m hit due to the decline in sterling. EBITDA declined 23% to £6.8m.

Paperchase chief executive Timothy Melgund said like-for-likes in the period were “comfortably positive” and “continue to be so” since the year-end. He was pleased that Paperchase has now “virtually replaced” the sales lost after Borders’ closure.

The Borders concessions were closed during Paperchase’s peak Christmas trading period. Much of the lost revenue will “come out in this year’s figures”, Melgund said.

He added it was “too difficult to call” whether overall turnover will rise or fall this year as a result, but said: “We’ve made great strides in replacing the lost Borders sales.”

Paperchase, which Melgund and management bought with backing from private equity firm Primary Capital in July for £30m, expects to open about 15 stores this financial year and a further 15 to 20 next year, through property agent CB Richard Ellis. At present it trades from 69 stores and 43 concessions.

It struck a deal with bookseller Waterstone’s to open concessions in 20 stores and has already opened 16.

Commenting on the prospects for its fourth quarter and next year, Melgund said he felt “OK, if a little anxious”, citing the potential impact of tax increases and job cuts in 2011.

International sales rose 18% to £5.3m. Paperchase has shops in Ireland, the Netherlands and the Middle East and is extending its international presence. The retailer recently opened its website to countries including France, Germany, Canada and New Zealand.