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Retail

Discounter Pepco Says 'Sales Challenges' To Continue Into 2024

By Reuters
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Discounter Pepco Says 'Sales Challenges' To Continue Into 2024

European discount retailer Pepco Group cautioned that it expected 'industry-wide short-term sales challenges' to continue into 2024.

The Warsaw-listed group, which owns the Pepco, Poundland and Dealz brands and warned on the outlook twice in September, also reported a 3.1% rise in full-year core earnings in line with its latest guidance.

'Cautiously Encouraged'

Executive chairman Andy Bond, however, did say he was "cautiously encouraged" by recent third-party data pointing to an expected easing of some pressures on household budgets, particularly in Central and Eastern Europe.

"We also continue to expect gross margin recovery throughout the year, and are already seeing encouraging signs here," Bond said.

Group Performance

The group said trading since the start of its new financial year has been mixed, with overall like-for-like revenues down 3.1% in the eight weeks to November 26.

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It made underlying EBITDA of €753 million in the year to September 30, up from €731 million in 2021-22.

Revenue was €5.65 billion, up 17.7% on a constant currency basis, as a net 668 new stores were opened, taking the total to 4,629 at the end of the period.

As previously flagged, the group said the profit outcome reflected weaker than expected fourth-quarter sales, particularly in Central and Eastern Europe, a lower gross margin as it shifted older stock, higher costs, and the drag from investment in new stores. It also took an additional provision for excess stock.

Store Openings

In October, the group said it would slow down its store opening programme to focus on rebuilding profitability. It also committed to the UK as its largest market.

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It still plans to open at least 400 net new stores in 2023/24 and is stepping-up the expansion of Poundland.

"The opportunities in our core markets remain significant, and we will leverage them in a more targeted way," Bond said.

Shares in Pepco are down 38% so far this year.

Analyst Viewpoint

According to Sophie Mitchell, retail analyst at GlobalData, "Pepco has ended its FY2022/23 with another set of robust results, delivering growth as the tough economic backdrop faced by consumers aided its position as a value retailer. Although it saw a slightly weaker set of Q4 results, where the group reported negative like-for-likes in August and September and subsequently revised its EBITDA expectations down to €750m, this still represents a 2.6% increase on last year, with the final unaudited figure ending on €753m.

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“The Poundland Group has experienced a more consistent performance throughout the year, experiencing 5.6% l-f-l revenue growth for the full year. Poundland has also managed to keep pace with rival B&M, who reported significantly stronger sales than Poundland in its Q1 (Poundland Q3) at 9.2%, but their positions almost equalised after a slightly weaker Q2 for B&M, bringing its UK l-f-l sales for the period to 6.2%.

"However, it will be interesting to see how its online channel, which was relaunched as a transactional website in September, fares over the next year. Despite making the Poundland offer more accessible geographically, there is a minimum £20 spend on Poundland.co.uk, at which point delivery is a punchy £5.95, making it an expensive way to shop for value products.”

Additional reporting by ESM

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