Pepco Group, the owner of the Poundland, Pepco, and Dealz chains, has posted a 2.5% fall in first-half like-for-like sales after continuing to face a tough trading environment across Europe. However, the group revealed that its profit margins were recovering and it had appointed a new Chief Executive after a management upheaval last year.
Over the six months to 31 March, the group’s revenue rose 11% to €3.2bn, driven by the opening of 289 net new stores.
However, like-for-like sales in its main Pepco chain fell 3.2% against a tough comparative period when sales jumped 15.8%.
Underlying sales at Poundland edged down 0.7%, with a positive performance of its FMCG ranges offset by weaker trading in clothing and general merchandise as the retailer transitioned to new Pepco ranges. The unit saw 81 gross new store openings during the period, largely reflecting the conversion of 56 former Wilko sites.
At Dealz, sales were down 4.6%, again impacted by the range transition.
The group issued two profit warnings towards the end of last year after struggling in some Eastern European markets. It stated today that it had seen a strong recovery in gross margins, driven by Pepco as it reigned in its expansion plans to focus on improving profitability. However, the business still plans to open at least 400 net new stores in its current financial year.
Executive Chair Andy Bond commented: “While the trading environment remains challenging, we are encouraged by signs of an improved performance in some of our core Pepco Central and Eastern Europe markets – a key geographical region for the Group – during the second quarter. We expect a continued upward trajectory in LFL sales at Pepco in H2.”
He added: “We remain focused on cost control and are on track to deliver a significant reduction in our capex this year – making us increasingly confident on enhanced free cash flow generation in FY24. Our margin improvements are being driven by a combination of macro-factors from easing input costs, including commodity and freight, to more favourable foreign exchange, as well as self-help levers, including enhanced purchasing and supply chain efficiencies.
“As planned, we’ve taken a measured approach to store openings in Q2, with new store growth focused in markets where we are confident of generating the highest returns. This targeted approach will continue over the coming quarters, as part of our renewed strategy to drive core profitability through a more disciplined approach to growth and investment.”
Meanwhile, Pepco Group announced the appointment of Stephan Borchert as its new Chief Executive. He will take up the role on 1 July and be based in London.
Bond will remain in his role as Executive Chair during a three-month transition period, reverting to the role of Non-Executive Chair on 1 October. He took over the running of the business in September last year after the unexpected resignation of then-Chief Executive Trevor Masters.
Borchert has led several international companies across various sectors, including fashion, beauty, pharmacy and healthcare services. Pepco Group said his extensive experience in leading complex, multi-brand retail businesses globally and in EMEA made him the stand-out candidate for the role.
He was Chief Executive of Vision Express owner Grand Vision for four years until the business was acquired by Essilor Luxottica in July 2022. Prior to that, he was president of Sephora EMEA.
Bond commented: “On behalf of the Board, it is great to welcome Stephan, who brings a wealth of experience and a results-driven track record in retail and international business operations. I look forward to working with Stephan to deliver our renewed strategy to improve profitability and cash generation in our core established business, while delivering more measured profitable growth.”
