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Pepco: Supply chain and legacy collection issues

Pepco: Problemy z łańcuchem dostaw i starszymi kolekcjami
  • Pepco Group, owner of the Pepco and Dealz brands in Europe and Poundland in the UK, publishes results for the third quarter of the financial year
    2024, ended June 30, 2024
  • Group revenues on a comparable basis (LFL) for the third quarter decreased by 4.3%.

The Pepco Group's revenues for the first 9 months of the year amounted to EUR 4,681 million, which, assuming constant exchange rates, means an increase of 10% compared to the previous year. However, revenues for the third quarter alone amounted to EUR 1,481 million, which at a constant exchange rate means an increase of 8% year on year.

Pepco's revenues decline. Challenges in the supply chain

Group revenues on a comparable basis (LFL) for the third quarter decreased by 4.3%. Meanwhile, Pepco's LFL revenues declined 2.7%, reflecting an earlier Easter holiday period, slower sales of older merchandise that are being sold off using price reductions, and supply chain challenges that impact the availability of summer offerings.
LFL Poundland's revenues decreased by 6.9% due to issues previously reported and currently being resolved regarding the launch of Pepco's product offering in the clothing and everyday goods categories.
LFL Dealz revenues declined 7.3% due to a shift from everyday products to Pepco-supplied goods and the highly competitive FMCG market

Pepco talks about 400 new stores

The group reports that the net number of new store openings in the current financial year was 326 (37 in the third quarter alone). The group remains on track to launch approximately 400 net new stores in fiscal year 2024.
The Group maintains its previous assumptions regarding the expected EBITDA result at the end of the financial year of EUR 900 million, which means an increase in this indicator by approximately 20% compared to the previous year (2023: EUR 753 million).

– The Group continues to make solid progress towards the strategic objectives presented in October 2023 at the Pepco Group Capital Markets Day (CMD), including the recovery of profitability of Pepco's core business in Central and Eastern Europe, as store performance returns to pre-COVID levels – 19, as well as by strongly focusing on costs and stronger cash generation through disciplined capital investments – it was emphasized.

Problem with selling older collections

Commenting on the results, Andy Bond, Executive Chairman of Pepco Group, said:

"We continue to execute on our strategy to deliver more sustainable growth – doing less to achieve more – with an increased focus on improving profitability. The gross margin improvement we signaled in the half-year results continued in the third quarter, and disciplined capital investments are translating into to a solid level of cash generation. In line with our strategy, we opened a smaller number of net new stores in the third quarter (37), focusing mainly on our core Pepco markets in Central and Eastern Europe, where we achieve the highest returns."

" Group revenues on a like-for-like basis in the third quarter were below our expectations, due in part to macro factors such as ongoing supply chain disruptions, and internal issues including slower-selling older collections that are currently being sold out, as well as the shift to clothing and general merchandise from Pepco's product offering in Poundland and Dealz . We are actively increasing availability and expanding the range of products we offer. We expect to see the benefits of these activities in the new financial year.
Looking ahead, the Group remains confident of achieving underlying EBITDA of approximately €900 million this financial year and ending the year with growing like-for-like sales across our core business under the Pepco brand. Our strong customer offer and market-leading prices make us well positioned for future success as Europe's leading discount convenience store chain," added Pepco.

New president of the management board of Pepco

On July 1, 2024, the Group welcomed its new CEO, Stephan Borchert. Stephan, who is based in the London office, joins the company as a manager with extensive experience in retail, as well as other sectors including fashion, cosmetics, pharmaceuticals and healthcare services. From 2018 to 2022, he was the CEO of GrandVision, a global leader in the optical industry with over 7,400 stores in over 40 countries around the world. Stephan is currently undergoing a three-month induction period. Andy Bond will remain as Executive Chairman during this transition period, returning to the role of Non-Executive Chairman on 1 October 2024, at the beginning of the new financial year.

Pepco is changing shipping routes

The group believes that availability issues that have impacted LFL's sales levels will reduce in the fourth quarter as the company mitigates the impact of the situation in the Red Sea by shipping products earlier and routing goods through different shipping lanes.

– We are also encouraged by the gradual improvement in stock levels at Pepco, with older goods from previous seasons being sold out, which improves the range offered in favor of newer, higher-margin goods that sell well. This situation should translate into a recovery in LFL sales in the fourth quarter of fiscal year 2024 and beyond, and management remains confident that the fiscal year will end with an improved LFL trajectory in Pepco's core business. Although LFL's overall third quarter revenues were below our expectations, the gross margin momentum shown in the half-year results continued strongly in Q3, driven by Pepco. The group continues to generate strong operating cash flow, supported by strict discipline in terms of investment capital. We are confident in the strength of our customer offering and our price leadership, which, together with solid brand equity and market share in our core market of Central and Eastern Europe, makes the Group well-positioned for future success as Europe's leading chain of discount convenience stores. – summarized.

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