However, the variety group, which trades as Instore and Poundstretcher, said turnover rose 4.3 per cent toÂŁ280.1 million in the 52 weeks to February 24. A sale of the business is understood to be imminent.
Instore chairman Christo Wise said: 'While this is clearly disappointing to be reporting a worsening of our loss-making position, this is largely a reflection of the significant changes that have been introduced across the business.'
However, the group said recent sales trends are strong, with like-for-likes up 7.9 per cent in the 11 weeks to May 12. Comparing the three-week Easter period with Easter last year, like-for-likes rose 9.4 per cent.
A modernised Poundstretcher fascia and interior was launched during the year, which has been introduced to 26 stores. Stock levels were also reduced by 35 per cent, releasingÂŁ14 million from working capital.
Wise said: 'Enhanced product offer, promotional activity and marketing have all led to a much stronger value message with, overall, encouraging progress being made into the commencement of the new financial year.
'Although there are many challenges still to be addressed, I have no doubt that the changes seen in 2006/2007 provide the business with a much firmer platform from which to operate and, despite the disappointments of recent years, the board remains confident of future success.'
Seymour Pierce analyst Richard Ratner said: 'We edge our estimate for the new year down from a profit ofÂŁ1 million to a loss of the same magnitude and for the following year look for a profit ofÂŁ4 million. All relatively encouraging, but very theoretical, as the South Africans are about to sell a 29.9 per cent stake to what we believe is a trade competitor.'
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