Alongside the release of its interim results yesterday, Pepco Group, the owner of the Pepco and Dealz brands in Europe and Poundland in the UK, noted that trading conditions remained tough as consumer spending comes under pressure from soaring inflation.
The group reaffirmed sales figures released in April for six months to 31 March. Overall revenue climbed 22.8% on a constant currency basis to €2.84bn, boosted by the opening of 166 new outlets and like-for-like growth of 11.1%.
In its core Pepco division, total sales rose 36.9% to €1.72bn, with like-for-likes climbing 15.8%. It ended the half with 3,101 stores after 134 openings.
Meanwhile, the Poundland unit saw sales increase by 6.3% to €1.12bn, with like-for-likes up 4.9%. It ended the period with 1,026 sites following the opening of 32 new stores.
Pre-tax profits were down 9% to €111m, impacted by higher interest costs and investment in its store expansion programme. However, underlying EBITDA was up 11.0% to €377m, with strong revenue growth partially constrained by a weaker gross margin rate.
The group noted that an “uncertain trading backdrop” had continued into April and May with signs of lower consumer confidence and a clampdown on discretionary spending due to high inflation, particularly in Central Europe.
“Evidence of this is being seen through lower frequency of visits and customers making different purchasing decisions,” Pepco said.
However, the group stated that it was keeping its full-year outlook unchanged as its speeds up its store opening programme. Over the full year, the retailer plans to open at least 550 net new stores, including the recent launch of the Pepco brand in Portugal, to be followed by Bosnia & Herzegovina later in the second half.
Pepco noted that it had not passed on all of the higher cost inflation it has been facing to customers. But it said it was expecting commodity and shipping costs to ease back as the year goes on, which is set to boost its profitability.
Trevor Masters, Chief Executive of Pepco Group, commented: “As we highlighted previously, inflation remains at elevated levels in Central Europe, against which trading in Pepco stores has remained challenging during the third quarter to date.
“Despite this, we have continued to do the right thing for customers on a budget by maintaining our price leadership and growing our market share, while focusing on the cost of doing business in these inflationary times.
“We remain well positioned and in the second half will see gross margins trending upwards, as we benefit from the tailwinds on certain input costs, including commodity and freight.”
NAM implications:
- So, inflation hurts…
- …but discounters/pound shops are in a better position than most to weather the New Norm storms.
- All the more reasons to find ways of trading with them…
