Pepco Group’s revenues amounted to €1,869m in Q1 of the 2023/2024 financial year (ended 31 December 2023), up 10.8% y/y on a constant currency basis, the company said.
The Group’s like-for-like (LFL) revenue decreased by 2.3% in Q1, but with an improving trend during the quarter, the release read.
Pepco chain’s LFL revenue declined 3.7%, with a high year-earlier base, when LFL sales grew 20% in Q1 FY2023. Poundland’s LFL revenue increased 0.9% with strong growth in the run-up to Christmas, supported by strong demand for fast-moving consumer products, with weaker clothing sales. LFL Dealz revenue fell 4.6% due to a planned reduction in the availability of everyday products, in preparation for a shift in the category’s offering to Pepco-supplied goods, it said.
In Q1, 203 net new shops were launched across the Group, which includes the conversion of Wilko shops in the UK. The total number of shops at the end of the period is 4,832.
“The Group achieved record revenues in the first quarter. While the Pepco brand saw a decline in LFL revenue in the period against a high base a year ago, the growth in LFL trend during the three months in the key CEE markets looked encouraging. Poundland further maintained its strong performance in Q1, supported by strong sales of fast moving consumer goods,” said Executive Chair Andy Bond commented.
“I am pleased that we improved gross margin by 200 basis points year-on-year in Q1. We expect this positive trend to continue into the 2024 financial year, excluding the possible impact of external factors beyond our control, such as industry-wide supply chain disruptions,” he added.
He also reported that the company is successfully implementing its updated strategy, presented last October.
“We are improving profitability and cash generation within our core business, while delivering more sustainable and profitable growth. We are acting quickly and decisively: we have embarked on a more targeted programme of shop openings, suspended our shop refresh programme and terminated operations that were not delivering an adequate return,” he said.
“Looking to the future, the Group has a market-leading customer proposition, a strict focus on delivering profit, and has a proven and profitable shop operating model, which gives us confidence that we will achieve further success in our key European markets,” he concluded.
The group launched 203 net new shops in Q1, with the distribution of openings concentrated at the beginning of the period to take advantage of peak sales periods. This figure also includes a one-off gain in the conversion of 54 Wilko shops to Poundland shops in the UK.
As a result, we expect a lower intensity of new shop openings in the coming quarters and expect to launch a total of at least 400 net new shops in the 2024 financial year, excluding the conversion of Wilko shops in the UK, which is a one-off, the company announced.
According to the chain, trading conditions remain challenging across most of Europe, but its 2024 outlook remains “cautiously optimistic”. Despite a 2.3% decline in the group’s LFL revenue in Q1, with a high baseline, it saw a positive trend in LFL performance over the period, it highlighted
A 200 bps y/y improvement in the Group’s gross margin in Q1 was achieved, driven by a strong rebound within the Pepco chain business. This also represents a significant increase in gross margin compared to the last quarter of FY2023. We expect the trend in gross margin performance to continue during the year due to improvements in product costs, including the cost of goods themselves, as well as the cost of transportation, more favourable foreign exchange rates and positive developments in purchasing margins. While we still see the potential for gross margin improvement in future quarters, we also note that the current events in the Red Sea are leading to higher spot freight prices and longer delivery times. The majority of our freight costs are contracted by the end of Q3, but our business is impacted by the additional costs associated with carriers opting for circuitous routes. While the impact of these events on commodity availability remains limited at present, if they continue for a longer period of time, they could impact supply in the coming months,” the company reported..
In addition to these external factors, management remains focused on the areas under its control, seizing the opportunity to support growth in our key markets in a more targeted and sustainable manner, which is already bearing fruit, including strong cash generation in Q1.
We will continue to be tightly focused on earnings while growing the business, maintaining strong performance, in order to deliver our strategy. This basic premise, together with a strong brand and a strong market share in the key markets of Central and Eastern Europe, and with a proven, profitable shop operating model, gives confidence in our ability to build a leading European chain of discount multi-branch shops, the company announced.
Source: Pepco and ISBnews
