European discounter Pepco Group has reported a 2.3% fall in underlying sales in the Christmas quarter but said it gross margin had improved, with the positive trajectory expected to continue over the year.
Group revenue was €1.9 billion ($2.1 billion) in the three months to 31 December, its fiscal first quarter, a rise of 11% on a constant currency basis, according to a trading update issued by the company.
That partly reflected the opening of 203 net new stores, taking the total to 4,832.
The group's gross margin improved 200 basis points year-on-year, driven by the Pepco business.
'Supply Chain Disruption'
"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," executive chair Andy Bond said.
Group like-for-like revenue had been flat in the previous quarter and down 3.1% in October and November.
In October, Pepco said it would slow down its store opening programme to focus on rebuilding profitability. It also committed to the UK as its largest market.
But it still plans to open at least 400 net new stores in 2023/24 and is stepping-up Poundland's expansion.
Inventory Levels
Pepco has cautioned that inventory levels could be impacted if disruptions to shipments through the Suez Canal due to attacks by Iran-backed Yemeni Houthi militants in the Red Sea continues through 2024.
'While there is limited impact on product availability currently, a prolonged issue in the region could also impact supply in the coming months,' the Warsaw-listed discounter, which also owns the Pepco and Dealz brands, said.
It noted that the situation in the Red Sea is leading to elevated spot freight rates and delays to container lead times.
The group said the majority of its freight costs are contracted until the end of its third quarter, but the business was facing additional surcharges from carriers in relation to the longer shipping routes being taken.
