Pepco Group, the owner of the Pepco, Poundland and Dealz chains, has cut its profit outlook for the second time in three weeks due to a “challenging” trading environment, with it also announcing further changes in its management team and the launch of a strategy review.
On 12 September, the group announced the unexpected resignation of its Chief Executive, Trevor Masters. The firm did not provide a reason for the decision, but it came alongside the lowering of its earnings guidance.
In a statement yesterday, Pepco said it had experienced weaker consumer demand for key clothing and general merchandise categories within its core markets of Central and Eastern Europe. This has resulted in lower-than-anticipated Pepco revenues during August, worsening in September, with negative like-for-like sales and weaker-than-expected performance from new stores. Record warm weather in CEE markets also impacted demand for newly launched autumn/winter lines.
The group noted that the slower rate of sales meant that an expected recovery in gross margins had yet to materialise as it worked through inventory from earlier in the year it bought at a higher cost.
Pepco said that the weaker sales, along with continued cost inflation pressures and the drag from investment in new stores, had resulted in a further downward revision to its full-year forecast. It now expects to deliver underlying EBITDA for 2023 of approximately €750m compared to €731m last year. Pepco stressed that it has a strong balance sheet with access to over €400m in liquidity.
In light of its underperformance, Pepco stated that it was taking “immediate and decisive steps” to reorientate its management structure. As a result, Anand Patel, the Managing Director of the Pepco business, is stepping down with immediate effect. He will be replaced by Barry Williams, the Managing Director of Poundland in the UK. Austin Cooke, who is currently Chief Operating Officer (COO) of Poundland, will assume the role of Managing Director of Poundland.
Pepco also revealed that it has established a new Group Executive Committee, which it said will undertake a strategy review across the business to place greater focus on addressing costs and initiatives that are likely to generate appropriate returns in the near term, accelerate its transformation into a single business and refocus on core markets.
“We remain confident in the opportunity of building Europe’s leading variety discount retailer offering great value to consumers across a range of FMCG, clothing and general merchandise products,” said Andy Bond, Executive Chairman.
“However, it is clear that we need to refocus on delivering for our customers in our core business while delivering more measured growth. We need to improve profitability and cash generation in our established business alongside a more targeted growth plan in markets where we have an existing presence.”
NAM Implications:
- Anticipate:
- Cost cuts
- Store selloffs
- Redefinition of the core business
- All part of the package.
