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Pepco Reports Continued Growth And Strategic Progress

Poundland store and Pepco store exterior copy

The fast-growing pan-European variety discount retailer, Pepco Group, owner of the PEPCO and Dealz brands in Europe and Poundland in the UK, today reports a trading update for the financial year ending 30th September 20221, with Full Year Preliminary Results to be published on 13th December 2022.

Financial Highlights

  • Full year Group revenues of €4,824m, +17.4% on a constant currency basis:

    o   PEPCO +28.7% growth
    o   Poundland Group: +5.0%
  • Strong Group like-for-like (“LFL”) full year growth of 5.2%:

    o   PEPCO: +7.4% LFL
    o   Poundland Group: +2.6% LFL
    o   Group September LFL growth of +15.5% providing strong exit rate into FY23

  • Full year underlying EBITDA on a constant currency basis is anticipated to be within a range of €735m to €750m, which is in-line with our year-on-year (“YoY”) growth expectations

    o   On an actual currency basis, underlying EBITDA is expected to be in the range of €720m to €735m
  • Net financial debt excluding capitalised leases amounted to €265m and is €168m higher than last year
  • Closing net debt5 of €1,430m (IFRS16) reflects an increase of €228m YOY

    o   driven by the continued growth of our store footprint as we execute our expansion strategy
    o   alongside working capital increases as we return to a higher – more normal – inventory position following the global supply chain disruption in FY21 

Delivering against strategic priorities

Bigger – Growing revenue, brand and market share

We delivered a record number of 516 net new stores under our accelerated store expansion programme – the Group’s single biggest driver of value creation – in FY22, ahead of our upgraded target of 450 new stores.  In PEPCO 446 new stores were opened, ahead of our 400 guidance, including 163 new stores in the strategically important Western European markets of Italy, Spain, Germany and Austria.

Within the Poundland Group 70 new stores were opened almost exclusively in the Dealz Poland business (excluding the closure of 59 Fulton’s stores).

Following an encouraging performance in new and existing markets, we are further accelerating our store expansion programme and are now targeting opening at least 550 net new stores in FY23 alongside entry into the new territories of Greece and Portugal for the PEPCO brand.

Better – Enhancing our store portfolio, categories and product ranges

We continue to drive a better business through store and proposition renewals with 727 store renewals completed (598 Pepco brand, 129 Poundland) in the year. This completes the PEPCO GM extension programme and continues the Poundland store refit programme driving LFL sales growth, economies of scale and enhancing the customer offer.  

As we updated in July following our successful trial in Spain of store conversions from Dealz to PEPCO –which offer the full range of PEPCO clothing & general merchandise and Poundland Group FMCG – the Group decided to retire the Dealz brand in Spain and pursue a growth strategy for the PEPCO brand.  The conversion programme is now underway and continues to perform in line with our expectations following the trials.

Following the successful work in Spain, PEPCO is now trialling a small number of PEPCO-branded stores in the Republic of Ireland. This will bring together our three categories under one roof, converting existing Dealz stores in six locations to the PEPCO brand.  Initial feedback from our first trial store in the Omni shopping centre in Santry, Dublin, has been exceptionally positive and we will carefully consider and review further customer reaction.  As in Spain, we will evaluate the response to this before making any further decision.

In addition to these existing renewal programmes, we conducted trials within PEPCO of a new proposition initially in 16 stores in Poland’s Wroclaw followed by 47 stores in the capital, Warsaw. This resulted in an increase in selling space of between 4% and 12% alongside improvements in store branding, layouts and product visibility delivering a commensurate improvement in financial performance.  These proven returns give us confidence and we will roll out this renewal programme to the rest of the PEPCO estate over the next 2 – 3 years. 

Current trading conditions

 Demand for our products remains strong even against the backdrop of significant uncertainty in the macroeconomic environment, exacerbated by the impact of geopolitical events. Whilst inflation remains at recent historic highs, in our core markets of Poland, Hungary and Romania inflation in clothing and footwear is running at only around a third of the headline inflation rate.  Both clothing and food remain resilient categories in the Polish and wider CEE retail sector. The outlook across the UK remains challenging as constraints on consumers’ disposable income continue.  That said, our value-led proposition becomes even more relevant in these challenging times and continues to drive new customers to our stores, expanding our target market, across Europe.

Supply side conditions in retail have been more positive recently; the price of cotton has fluctuated but remains below recent peaks.  There has also been some easing of freight costs which continue to fall from peak but remain high against historical levels, while supply chains are not yet fully recovered from the pandemic.  

Commenting on the results, Trevor Masters, CEO of Pepco Group, said:

“These are very challenging times for families across Europe and we remain absolutely committed to helping customers on a budget by offering great range, value and convenience – and we are confident this will enable us to expand our customer base going forward.

“After another year of good progress, we are accelerating our profitable store-expansion programme – our biggest source of value creation – and store refit strategy, helping to drive like-for-like sales growth. Following recent successful openings, we will be launching the PEPCO brand in the new markets of Greece and Portugal in FY23.  We are also trialling our broadest offering of clothing, general merchandise and FMCG under the PEPCO banner in a handful of stores in Ireland.

“We will continue to drive our business using our four key strategic levers – bigger, better, simpler and cheaper. This strategy is driving faster growth through accelerated store openings and innovation to improve each store for customers and colleagues, helping to further enhance our LFL performance.  We are also deploying these levers to lower our cost structure – to be significantly cheaper and more efficient – and improve back-office structure and processes. This strategic focus has served us well in growing sales and delivering on EBITDA and cash generation.  We are accelerating our strategy in order to capitalise on the opportunities available to us in these volatile market conditions.

“Our progress to date gives us confidence that this continued expansion of our estate will enable us to achieve greater scale economies across the Group and drive further efficiency savings.  As a result of our continued focus on driving progress under our key strategic pillars, we remain confident of our ability to continue to grow our EBITDA, in line with our historic run-rate, in the absence of any further deterioration of macro-economic trading conditions.”

Source : PEPCO Group 

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12 October 2022

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