Pepco Group, the owner of the Poundland, Pepco, and Dealz chains operating across Europe, has posted robust annual results but noted that it has been experiencing weaker sales in recent months.
In the year to 30 September, the group’s revenue rose 17.7% (+6.0% like-for-like) on a constant currency basis to reach a record €5.65bn. Growth was driven by its Pepco brand, which saw sales climb 24.8% on the back of store openings. Poundland’s growth was 8.4%.
However, the group’s underlying pre-tax profit slipped 33.7% to €202m, reflecting investment in stores, expansion and related supply chain costs, alongside higher inflation and interest costs. Underlying EBITDA edged up 3.1% to €753m.
During the year, the group opened a net 668 new stores (826 store openings and 158 store closures), primarily with the Pepco brand in Central and Eastern Europe, but also in Western Europe.
As part of a strategy to restore profit growth, Pepco stated that it will now take a “more disciplined approach to growth”. Store openings will be focused on its existing markets, with a net 400 new sites planned for the current financial year.
Meanwhile, the group said it sees strong potential in the UK discount space, which is forecast to grow quicker than Germany and France in the coming years. To take advantage of this, the group has been accelerating its Poundland store opening programme stores and refreshing its existing estate.
Poundland recently completed its biggest-ever quarterly expansion, with the opening of 87 new stores in just 70 days. This included 64 former Wilko stores that were reopened under the Poundland fascia after the leases were acquired in September when the chain collapsed.
Updating on the group’s current trading, Pepco revealed that like-for-like revenues had declined by 3.1% in the eight weeks to 26 November. This was against a strong trading period in the prior year, with the company noting that it was seeing sequential improvements week-on-week.
For the Pepco fascia, the impact of unusually warm weather conditions on trading carried through to the early weeks of October across some geographies. At Poundland, like-for-like sales were said to be slightly above the same period last year, reflecting a strong performance in FMCG that offset a weaker performance in clothing.
The group stated that it expects more challenging trading conditions in its current financial year, but remains “cautiously optimistic” about its prospects.
In particular, a more disciplined control of operating costs and line-of-sight on easing input costs, including commodity and freight, is expected to help the business rebuild margins back to pre-pandemic levels.
Despite the significant uplift in annual revenues, CEO Andy Bond noted that its overall performance was “mixed with a disappointing profit outturn”.
He added: “As we laid out at our Capital Markets Day in October, we are acting decisively to address this, reaffirming our strategy to deliver more measured growth – doing less, to achieve more – with a greater focus on improving profitability and cash generation. This includes a more targeted approach to new store openings in existing markets, and our renewed focus on transitioning into one single business through a unified customer offer and sourcing strategy, helping us drive enhanced cost and operational efficiency.
“We also committed to the UK as the group’s largest market. Our ambition is to continue the strong progress made by the team, such as the ongoing enhancement of Poundland’s proposition, including introducing the Pepco clothing range in stores, alongside its extensive FMCG range that is appreciated by customers.
“Looking ahead to 2024, while we expect industry-wide short-term sales challenges to continue, we are cautiously encouraged by recent third-party data pointing to an expected easing of certain pressures on household budgets, particularly in Central and Eastern Europe. We also continue to expect gross margin recovery throughout the year, and are already seeing encouraging signs here. The group has a market-leading customer proposition, a strong balance sheet, and resilient operating cash flow to continue success across Europe. The opportunities in our core markets remain significant, and we will leverage them in a more targeted way, with an enhanced emphasis on capital, returns, and free cash flow, helping to grow the business in line with our renewed strategy.”
