Pepco Group, the owner of the Poundland, Pepco and Dealz chains, generated record sales during the run-up to Christmas, driven by new store openings. However, underlying sales performance was weak in the UK and key markets in Europe, with the group warning that trading conditions continue to be “challenging”.
In the group’s fiscal first quarter to 31 December, total revenues rose 10.9% on a constant currency basis to €1.87bn after the opening of 203 net new stores during the period.
However, in its main Pepco unit, like-for-like sales slipped 3.7% following a period of weaker consumer demand for its clothing and general merchandise categories within its core markets of Central and Eastern Europe. The group was also up against a tough comparative period last year when like-for-likes had jumped 20%, with the group noting it had seen an improving sales trend over the last three months.
At Poundland, like-for-like sales only grew by 0.9% after a strong peak Christmas performance driven by FMCG items was offset by weaker demand for clothing. The unit added 77 new stores during the quarter, largely reflecting the opening of 54 former Wilko sites.
Meanwhile, the Dealz chain saw like-for-like sales slide 4.6%. The group stated that this was driven by planned lower stock availability in general merchandise categories ahead of a transition to Pepco-sourced products.
In its last financial year, the company saw its underlying pre-tax profit fall 33.7% to €202m, reflecting investment in stores, expansion and related supply chain costs, alongside higher inflation and interest costs. It was also impacted by the slowdown in trading in Central and Eastern Europe.
The group stated today that a recovery in gross margin was underway with a 200 basis point improvement year-on-year in the quarter, driven by its Pepco chain. “This positive trajectory is expected to continue over FY24 – notwithstanding the potential impact of external factors beyond our control, such as industry-wide supply chain disruption,” said Andy Bond, Executive Chair of Pepco Group.
The company noted that the current situation in the Red Sea was leading to elevated spot freight rates and delays to container lead times. “The majority of our freight costs are contracted until the end of Q3, but the business is facing additional surcharges from carriers in relation to the longer shipping routes being taken,” it said.
“While there is limited impact on product availability currently, a prolonged issue in the region could also impact supply in the coming months.”
As part of a strategy to restore profit growth, Pepco stated last year that it would take a “more disciplined” approach to its growth following rapid expansion in recent years. The group reaffirmed today that it was planning a net 400 new sites for its current financial year, down from 668 during the previous 12 months.
Bond concluded: “We are making good progress against our renewed strategy, as outlined in October last year, to improve profitability and cash generation in our core established business, while delivering more measured profitable growth. We are acting decisively at pace – we have initiated a more targeted store opening programme, paused the new look refit programme, and stopped activities that will not produce appropriate returns.
“Looking ahead, the Group has a market-leading customer proposition, strict focus on returns, and proven profitable store model that makes the leadership team confident in delivering future success across our core European markets.”
NAM Implications:
- Clearly a pre-tax profit fall of 33.7% (albeit much of it well invested) will need restoring.
- Along with acceptable like-for-likes.
- This means that future supplier negotiations will focus on profit improvement.
- Over to you…
