Pepco Group powers ahead, continues to outperform wider market

By

Sandra Halliday

Published
Dec 13, 2022

The year to the end of September was one of “continued strong strategic progress” driving profitable growth for Pepco, Poundland and Dealz owner Pepco Group. Sales and profits both soared for the the pan-European value chain operator, despite the tough backdrop (or perhaps because of it with consumers across Europe more focused on looking for bargains).

And for the current financial year that's now been running for just over two months, the company said that macroeconomic conditions remain challenging, but the group “continues to outperform the wider market”.

It's heavily focused on maintaining its price leadership position through which it believes it can grow its market share. And it said it's also focused on maintaining and growing its relevance with both its existing customers and new ones. That comment is particularly interesting given that it's likely to have attracted large numbers of new shoppers lately who might have been trading down from more expensive stores because of the cost-of-living crisis.

The company said that inflation rates continue to rise in many of its key markets, “albeit there are early signs of this peaking”. Price rises in clothing and general merchandise (GM) remain well below headline rates of inflation. 

It added that “as a result of the successful implementation of our strategy, our operations are becoming more efficient and more effective. Supply side conditions in retail have been more positive recently; the price of both cotton and oil has fluctuated but remains below recent peaks and there has also been some continued easing of freight costs. However, macroeconomic volatility is unlikely to abate in the near term as geopolitical events continue”.

STELLAR RESULTS

So, looking in detail at the results for the last year shows the business is growing fast. Its unaudited full-year results showed revenue up 17.4% year on year to €4.823 billion on a constant currency (CCY) basis. It rose 17% on an actual basis.

Like-for-like sales growth was 5.2% CCY and underlying EBITDA on an IFRS16 basis of €731 million was at the upper end of its €720 million-€735 million forecast. That represented a 14.3% CCY rise and a 13% one on an actual basis.

Underlying profit before tax rose 25.8% CCY and 23.2% actual to €300 million. 

The company hit a record number of new store openings, opening a net 516 branches. This figure excluded the closure of 59 Fultons stores as well as its revamps of another 727 of its locations. It has been focusing on bigger stores in recent periods with branches opened or revamped that dedicate even more space to clothing and beauty.

Unfortunately, it didn't break out performance figures for the individual chains or call out growth rates for its Pep&Co clothing line that it has been expanding at pace in recent periods. But in an October trading update, it said that its European Pepco chain was strongest while the UK and European Poundland/Dealz operation saw slower growth but was still ahead. It also talked of resilience in clothing.

Looking ahead to FY23, the company is “confident in our ability to continue to grow our market share and brand presence across Europe”. It’s sticking to guidance for FY23 of delivering EBITDA growth in the mid-teens, assuming constant FX rates and in the absence of any further significant deterioration in the macroeconomic environment. It expects revenue growth to continue in the mid to high teens, driven by a combination of its “accelerated store rollout and like-for-like growth tick-up of the existing estate, supported by the store enhancement programme”. 

“Over the longer term, we are accelerating our strategy and as a result we will deliver €1 billion EBITDA on an IAS 17 basis in less than five years’ time, which is ahead of our target outlined at the time of our IPO in May 2021,” it said.