Pepco Group, the owner of the Poundland, Dealz and Pepco chains, has posted disappointing third-quarter trading figures after being hit by supply chain issues and disruption caused by the introduction of new ranges.
Over the three months to 30 June, the group’s total sales rose 8% to €1.48bn, driven by new store openings. However, like-for-like sales slipped 4.3% after all its formats underperformed.
Like-for-like sales at Poundland fell 6.9%, with the group blaming challenges related to the introduction of new Pepco-sourced clothing and general merchandise ranges. It noted that these issues were “being addressed”.
At Pepco, like-for-like sales slid 2.7%, reflecting the earlier timing of Easter, slower-selling older stock that was being traded out through markdowns, and supply chain issues impacting the availability of new summer stock.
“The group remains confident that availability issues that have impacted like-for-like sales will ease through the fourth quarter, as we mitigate the Red Sea impact by shipping product earlier and channelling stock through different shipping routes,” it said.
Meanwhile, the Dealz chain saw like-for-like sales fall 7.3%, impacted by the transition to Pepco-sourced general merchandise and a “highly competitive FMCG market”.
The group revealed that it has opened 326 net new stores in nine months to date (37 in the third-quarter), with it remaining on track to open around 400 new sites overall in its current financial year.
The company also highlighted that its year-on-year recovery in gross margin had continued in the latest quarter, with it maintaining its previous guidance on the full-year EBITDA outlook of around €900m, representing growth of around 20% over the prior year.
Executive Chair Andy Bond commented: “We have continued to execute against our strategy to deliver more measured growth – doing less, to achieve more – with a greater focus on improving profitability. The improved gross margin trajectory we flagged at the half-year results has continued strongly into the third quarter, and disciplined capital investment is driving strong cash generation. In line with our strategy, we opened a lower number of net new stores in the third quarter (37), largely focused on our core Pepco Central and Eastern Europe markets, where we are delivering the highest returns.”
He added: “Group like-for-like revenues in Q3 were below our expectations, partly due to macro factors, such as ongoing supply chain disruption, and company-specific issues, including slower-selling older stock, which is being removed through markdown, as well as the transition to Pepco-sourced clothing and general merchandise in Poundland and Dealz. We are actively improving the availability and breadth of our ranges, and expect to benefit from these actions in the new financial year.”
Looking ahead, Bond said it expects to exit the year with an improved trajectory in like-for-like sales in its core Pepco business as supply chain issues ease. “Our strong customer proposition and market-leading pricing leaves us well placed for future success as Europe’s leading variety discount retailer,” he concluded.
NAM Implications:
- It can be difficult to cut oneself out of a low price/discounter sales slide.
- Especially when most retailers are rivals, cutting prices in tandem…
- Availability improvements can help, if demand holds.
- All in all, fingers crossed.
