Dealz Owner Pepco Says Trading Environment Remains Challenging

By Reuters
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Dealz Owner Pepco Says Trading Environment Remains Challenging

Discounter Pepco Group, which reported a 2.5% fall in first-half same-store sales, has said the trading environment across Europe remains challenging.

The Warsaw-listed owner of the Pepco, Poundland and Dealz brands, which issued two profit warnings last September, said group revenue was €3.2 billion in the six months to March 31, a rise of 11% on a constant currency basis, which reflected the opening of 289 net new stores.

The group, whose shares have lost more than half of their value over the last year, also announced the appointment of Stephan Borchert, the former chief executive of optical retailer GrandVision, as CEO effective from July 1.

It said Andy Bond will remain in his role as executive chair until Oct. 1, when he will revert to the role of non-executive chair.

'Improved Performance'

"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," Bond said.


The group was also encouraged by year-on-year improvements in gross margins, which it said were being driven by easing input costs, including commodity and freight, more favourable currency rates, and better buying margins.

The group noted disruption to Red Sea shipping continued to lead to some surcharges in freight rates and delays to container lead times.

However, it said it was 'managing' product availability and did not expect this to significantly impact gross margins in the second half.

'Overall, the group remains confident in delivering profitable growth in this financial year,' it said.


Store Openings

In October, the group said it would slow down its store opening programme to focus on rebuilding profitability and in February it said it would exit the Austrian market.

The group still plans to open at least 400 net new stores in 2023/24.

Also in February, Pepco said its Hungarian business had lost about €15.5 million in a phishing attack.

Analyst Comment

Commenting on the group's performance, Sophie Mitchell, retail analyst at GlobalData, said, "Pepco Group has succeeded in delivering another quarter of strong growth, with revenue rising by 11.7% in constant currencies to €1.349 billion for its Q2 FY2023/24 as store openings and a continued attraction to its value offer bolstered its performance.


"Poundland witnessed revenue growth of 4.5% in constant currency but a decline of 2.8% in l-f-l revenues as it was also impacted by strong comparatives, as well as nine store closures during the period and some changes to its mix of merchandise.

“The group’s Pepco fascia performed well, with revenue growing by 14.7% in constant currency for Q2 and by 14.6% for H1 overall, due to most of the group’s store openings occurring in its core Central and Eastern Europe markets. Pepco opened 215 net new stores in H1, the largest set of openings across its fascias, which should help to drive l-f-l revenue growth in its H2, as the group has confidence in the Central and Eastern European markets it has opened them in.

"These figures exclude the group’s operations in Austria, due to its exit from the country in 2024 after an in-depth performance review. This exit exemplifies the Pepco Group’s laser focus on strategy and profitability, which will aid its performance in the second half of its financial year."

Additional reporting by ESM

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