Poundworld pre-tax profits fell despite surging sales as the value retailer invested in new stores and its back office infrastructure.

In the year to March 31, pre-tax profits dropped fell 34% to £1.9m but sales increased 42% to £294m, according to documents filed at Companies House.

But Poundworld said operating profit increased 2.6% to £4.9m after taking out exceptional items and EBITDA surged 20% to £10.2m.

The retailer also reduced its net debt to £4.3m.

Poundworld said: “The year under review proved challenging for the business as the UK economy continued to stagnate and household disposable income remained under pressure. Trading during the summer proved particularly difficult.”

Poundworld blamed its profit slump on the Queen’s Diamond Jubilee and 2012 London Olympics, which it said “kept shoppers away from the high street”. The retailer said its decision to accelerate store openings also hit profits.

But Poundworld said that since year-end like-for-likes have been been above 4% and over the Christmas trading period like-for-likes jumped 3%.

Poundworld opened 46 stores in the year, taking its estate to 210 shops by the end of the year. The retailer said it took advantage of retail property that had burst on to the market following a number of administrations and store closures across the retail sector in the year.

Poundworld also invested in back office infrastructure to support the store growth.

Poundworld managing director Chris Edwards said: “As well as major developments being made to our IT infrastructure, we have invested heavily in our Far East operations, opening a new office in Shanghai that now employs over 20 people.

“What’s more, investment in personnel in our UK head office has also played a key part, these improvements have helped us to  build a structure that will really come in to effect and greatly benefit our operations in 2014.”  

It is the second consecutive year that profits have dropped after the retailer experienced a 28% fall to £2.8m in 2012, as it again invested in store growth, opening 52 in the period.

Poundworld is currently rebranding its multi-price fascia Discount UK, which operates from 35 stores, to Bargain Buys. The retailer said it made the decision to change the name after conducting market research. All stores will be rebranded in the next six months and Poundworld plans to open new 20 stores in the next 12 months.

Poundworld plans to invest in a further 100 stores by 2016 after completing a refinancing deal with Barclays at the end of last year. The agreement will provide the value retailer with working capital, trade finance and term debt.

Edwards added: “Investment in buying, technology, further expansion of our store and wholesale operations, plus the launch of a new multi-price brand are all ways that we are combatting the threat of competitors. The last several months we have been looking at additional cost-saving processes across the business to improve efficiency in 2014.”

The retailer is battling a fiercely competitive value retail market which includes Poundland, B&M Bargains and Poundstretcher. In October, rival 99p Stores also reported falling profits as it invested in expanding its operations while Poundstretcer also slipped into the red in its last financial year blaming the competitive trading environment.