Pepco Group, a leading European discount retailer behind brands like Pepco, Poundland, and Dealz, is bracing for ongoing short-term sales challenges projected to extend into 2024. Despite a 3.1% uptick in core earnings for the fiscal year concluding on September 30, the beginning of the new financial year has shown a mixed performance, with like-for-like revenue contracting by 3.1% until November 26.
While Pepco maintains a cautiously optimistic stance regarding improved profit margins, the absence of new earnings guidance has led to a 6% dip in shares, extending losses for 2023 to 42%.
The retail landscape, especially in Central and Eastern Europe, remains challenging due to consumer caution in discretionary spending. Sales in this region fell slightly below expectations. In the UK, Poundland exhibited marginal growth in like-for-like sales, propelled by robust consumer packaged goods performance but offset by weaker results in clothing.
Executive Chairman Andy Bond expressed cautious encouragement, citing third-party data suggesting a potential easing of pressures on household budgets, particularly in Central and Eastern Europe. Pepco anticipates gross margin recovery, with positive signals from easing commodity and freight costs.
For the fiscal year 2022/23, Pepco reported underlying EBITDA of 753 million euros ($811 million) on revenue of 5.65 billion euros, reflecting a 17.7% increase on a constant currency basis. Despite opening 668 new stores, the profit outcome was impacted by weaker-than-expected fourth-quarter sales, lower gross margin due to inventory shifts, increased costs, and investments in new stores.
In a strategic shift announced in October, Pepco slowed down its store opening program to prioritize profitability. However, the commitment to the UK as its largest market remains strong, with plans to open at least 400 net new stores in 2023/24 and an accelerated expansion strategy for Poundland.
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