December 7, 2016 / 4:14 PM / 8 months ago

Poundland shifts away from one price fits all

Pedestrians walk past a Poundland store in London, Britain November 10, 2015.Stefan Wermuth/Files - RTSMLHE

JOHANNESBURG (Reuters) - New owner Steinhoff (SNHG.DE) (SNHJ.J) is dropping Poundland's single-price format to sell a broader range of products to thrifty British consumers, the South African company said on Wednesday.

Steinhoff, on its own spending spree for no-frills furniture and general merchandise assets in Europe, bought Poundland for $800 million (£635.07 million), a deal analysts said would be a prelude to an overhaul at the British retailer.

The highly acquisitive firm, which also tried to buy France's Darty PLC and Britain's Home Retail, is adding apparel and footwear products from its Pep&Co chain to Poundland.

"Management is quite confident that a multi-pricepoint and a different mix of product is definitely in store for the future for those brands in the UK," Chief Executive Markus Jooste said.

Poundland built its business on selling products at a flat rate of 1 pound.

Sales of Pep&Co products in large Poundland stores were ahead of expectations, Jooste told analysts in a call after the firm reported a 12.5 percent rise in quarterly group profit.

Poundland was not included in the results for the three months to the end of September, but Jooste said that in the stores where Steinhoff had offered the new products "gross margins increased substantially".

Steinhoff did not respond to a request for comment about possible store closures in Britain after reports that it planned to close 80 of its 900 Poundland shops.

Shares in Steinhoff rallied 9 percent on the results, helped by clearer guidance on how Poundland and the $3.8 billion acquisition of U.S.-based Mattress Firm would be integrated into the business, analysts said.

"They are moving to a multiprice format over time, it makes sense as the discount sector has been growing its market share in the UK for more than a decade," said Investec Asset Management analyst Rob Forsyth

The firm further said it plans to double its clothing stores in eastern Europe to 2,000 in the next five years, extending the retailer's reach in one of its fastest-growing regions.

Steinhoff's expansion into eastern Europe has been particularly rapid and profitable, with like-for-like sales in Poland, Slovakia, Czech Republic, Romania and Hungary up by a fifth on a year ago.

It has increased the number of stores to 1,000 from only 14 around a decade ago.

"There is a lot of growth still to be achieved in eastern Europe," Jooste said.

The firm reported a 12.5 percent rise in operating profit to 327 million euros (£279.39 million) in the quarter to September from 291 million euros a year earlier, buoyed by eastern Europe and South Africa.

Additional reporting by Tiisetso Motsoeneng; Editing by Louise Heavens and Keith Weir

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