Pepco sees low revenues for Poundland clothing as retailer falls behind expectations

European discount conglomerate Pepco Group has reported its interim results for the six-month period ended March 31, 2024, during which time it saw revenues rise 13.8 percent year-on-year to hit 3.2 billion euros.

While the group itself welcomed positive results for the business as a whole, with group EBITDA up 28.2 percent and gross margin sitting at 43.1 percent, its experience with the UK-based Poundland was less optimistic.

Despite seeing “good potential” in the discount space, reflected in the opening of 81 stores during the half year period, Poundland reported a “mixed performance” in its conversions, caused by the large-scale transitions into former Wilko stores and the scale of sales throughout Christmas.

The retailer’s revenues, however, grew by 5.3 percent to 1,054 million euros, alongside a gross margin that remained largely flat at 38.8 percent despite forecasted improvements. EBITDA dropped to 42 percent, due to impact from higher labour costs and an increase in store numbers.

In addition to this, there has also been a lacklustre response to the introduction of Pepco-sourced clothing, which debuted in Poundland stores in September 2023, and has since failed to replicate the previous depth and range of Poundland’s previous ranges, resulting in lower like-for-like revenues in the clothing category.

Pepco CEE hailed ‘standout performer’ as EBITDA returns to pre-Covid levels

Pepco said it anticipates this transitional issue to continue during FY24, with an improved trajectory of Poundland’s clothing performance expected to come in the second half of the year.

This was touched upon in a statement from executive chair of Pepco Group, Andy Bond, who said: “Despite a positive [fast-moving consumer goods (FMCG)] contribution, Poundland’s performance was behind expectations due to challenges in implementing the significant range change to Pepco products, which we are addressing.”

Elsewhere, the group was more optimistic, particularly towards its efforts to rebuild profitability in its core Central and Eastern European (CEE) business, which achieved its target of rebuilding Pepco CEE 4 wall EBITDA back to pre-Covid levels, driven by a strong recovery of its gross margin, among other initiatives.

As such, Bond labelled the category as the “standout performer” for the period, highlighting its progress against strategic priorities while noting that there were further opportunities for improvement.

The Pepco retailer itself saw revenue rise 16.3 percent as a result of its 627 plus new stores, while gross margin now sits at 45.5 percent, up from the prior 40.7 percent.