European discount retailer Pepco Group reported a worse-than-expected 4.3% fall in third-quarter underlying revenue, which it said partly reflected a delay in summer stock hitting store shelves due to shipping issues in the Red Sea.
The Warsaw-listed owner of the Pepco, Poundland and Dealz brands, did, however, maintain its profit guidance for the full year.
"The group remains confident that availability issues that have impacted like-for-like sales will ease through the fourth quarter, as we mitigate the Red Sea impact by shipping product earlier and channelling stock through different shipping routes," it said.
Disruption to shipping through the Suez Canal, due to attacks by Iran-aligned Yemeni Houthi militants in the Red Sea, has continued through 2024.
Like-For-Like Sales
The group, whose shares are down 44% year-on-year, said like-for-like sales in the quarter to June 30 fell 2.7% at the main Pepco business, reflecting the earlier timing of Easter this year, slower selling of old stock that is having to be marked down, and the supply chain issues impacting availability of new summer stock.
At Poundland in the UK, like-for-like sales fell 6.9%, which the group said reflected challenges related to the introduction of new Pepco-sourced clothing and general merchandise, which are being addressed.
Dealz's like-for-like sales fell 7.3%, also impacted by the transition to Pepco-sourced general merchandise, as well as a highly competitive market.
Full-Year Expectations
The group said it still expected 2023/24 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of about €900 million, up from €753 million in 2022/23.
It said a strong year-on-year recovery in gross margin had continued into the third quarter, and it was confident of exiting the financial year with an improved like-for-like sales trajectory in the core Pepco business.
After issuing two profit warnings last September, the group said it would slow down its store opening programme to focus on rebuilding profitability. In February, it said it would exit the Austrian market.
It opened 37 net new stores in the quarter, taking the total to 4,882.
Analyst Viewpoint
Commenting on the group's performance, Sophie Mitchell, retail analyst at GlobalData, said, “Having hoped to see an improvement in its like-for-like (l-f-l) performance in the second half of its financial year, the Pepco Group has reported a decline in l-f-l revenue of 2.7%, highlighting the extent to which its year-on-year revenue growth of 7.6% for Q3 FY2023/24 has been driven by store openings in its core Central European markets.
"Similarly, the Group’s Pepco facia saw revenue increase 12.6%, as 48 new store openings primarily in its CEE markets produced high returns.
"Pepco must therefore not neglect its product offer and should continue to aim to bring the best value products to the region to drive l-f-l growth as well as y-o-y growth. Dealz Poland also had a stronger performance, with revenue increasing 23.3%, also driven new stores with eight opening in the quarter, as l-f-l revenue declined 7.3%."
Additional reporting by ESM
