Month’s second cut in Pepco outlook

Discount retailer Pepco Group has lowered its profit outlook for the second time in September, blaming an “increasingly challenging” trading environment in its core markets of Central and Eastern Europe.

The Warsaw-listed group, which owns the Pepco, Poundland and Dealz brands, had performed resiliently through the first year of the cost-of-living crisis but cautioned in July sales growth had started to slow.

It said on Thursday it has seen weaker consumer demand for its key clothing and general merchandise categories.

“This has resulted in lowerthan-anticipated Pepco revenues during August, worsening in September, with negative like-for-like sales and weaker than expected performance from new stores,” it said.

It has not yet seen an expected recovery in gross margins as it continued to work through inventory from earlier in 2023 bought at a higher cost.

The landing of its autumn/ winter collection in stores also coincided with record warm weather in its core markets, resulting in weaker customer demand. The weaker sales, continued inflationary pressure on costs, and the drag from investment in new stores, meant a further cut to its earnings outlook.

It now expects full-year 2023 core earnings, or ebitda, of about €750m, versus €731m in 2022.

Pepco shares were down as much as 5.5% shortly after the market opened.

The previous time the group has downgraded its outlook was on September 12 when CEO Trevor Masters resigned and chair Andy Bond took on an executive role.

The group made further management changes on Thursday. Anand Patel, MD of the Pepco business, has stepped down and has been replaced by Barry Williams, the MD of Poundland. Austin Cooke, currently the COO of Poundland, has been promoted to MD.

A new group executive committee will undertake a strategy review. “It is clear that we need to refocus on delivering for our customers in our core business while delivering more measured growth,” Bond said.

“We need to improve profitability and cash generation in our established business alongside a more targeted growth plan in markets where we have an existing presence.”