Pepco posts ‘disappointing profit outturn’ despite record sales of €5.6bn

In its preliminary trading update for the full year ending September, 30, 2023, Pepco reported sales of €5.6bn (£4.8bn), representing a record growth of 17.7% on a constant currency basis. 

Like-for-like sales were up 6% during the same period while underlying EBITDA was up 3.1% year on year on a constant currency basis to €753m.

Despite record sales, underlying profit before tax fell to  €202m, down 33.7% year on year, “reflecting investment in stores, expansion and related supply chain costs, alongside higher inflation and higher interest costs.”

Andy Bond, Pepco Group executive chair, said: “Despite a challenging market backdrop, we delivered another year of strategic progress and record sales of €5,6bn (£4.8bn), against a strong prior-year comparative.

“We opened a record number of 668 net new stores, primarily with the Pepco brand, in Central and Eastern Europe, but also in Western Europe, with new store openings in the region approaching half of the total introduced. This was amid encouraging progress into Western Europe in countries such as Spain and Italy.”

Targeted approach

Bond continued: “Our overall performance was mixed with a disappointing profit outturn. As we laid out at our Capital Markets Day in October, we are acting decisively to address this, reaffirming our strategy to deliver more measured growth – doing less, to achieve more – with a greater focus on improving profitability and cash generation.

“This includes a more targeted approach to new store openings in existing markets, and our renewed focus on transitioning into one single business through a unified customer offer and sourcing strategy, helping us drive enhanced cost and operational efficiency.

“We also committed to the UK as the group’s largest market. Our ambition is to continue the strong progress made by the team, such as the ongoing enhancement of Poundland’s proposition, including introducing the Pepco clothing range in stores, alongside its extensive FMCG range that is appreciated by customers.”

The group said it expects to open at least 400 net new stores across all formats in the next year, with most of them being under the Pepco brand.

Significant opportunities

Bond said the group foresees the continuation of challenging times ahead.

“Looking to 2024, while we expect industry-wide short-term sales challenges to continue, we are cautiously encouraged by recent third-party data pointing to an expected easing of certain 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,” he said. 

”The group has a market-leading customer proposition, a strong balance sheet, and resilient operating cash flow to continue its success across Europe.

“The opportunities in our core markets remain significant, and we will leverage them in a more targeted way, with an enhanced emphasis on capital, returns and free cash flow helping to grow the business in line with our renewed strategy.”