Pepco Group urged to ‘rethink’ Poundland clothing amid poor Q3

Polish retail company Pepco Group saw a 6.9% decline in revenue at its British Poundland retail outlets in Q3 FY24 following the introduction of its clothing range with an industry expert suggesting it needs to be more "competitive".

Rachel Lawler July 11 2024

While Pepco’s group revenue, of €1.481m ($1.606m) was up 8% year-on-year on a constant currency basis, group like-for-like revenue was down 4.3% overall in Q3 2024.

Pepco owns British retailer Poundland as well as Pepco and Dealz brands in Europe, which reported a decline of like-for-like revenue of 2.7% and 7.3% respectively.

Supply chain issues impacting summer stock and “a highly competitive FMCG market” were attributed for the falling revenues at Pepco’s European brands.

Pepco Group executive chair Andy Bond said in a statement: “Group like-for-like revenues in Q3 were below our expectations, partly due to macro factors, such as ongoing supply chain disruption, and company-specific issues, including slower-selling older stock which is being removed through markdown, as well as the transition to Pepco-sourced clothing and general merchandise in Poundland and Dealz. We are actively improving the availability and breadth of our ranges, and expect to benefit from these actions in the new financial year."

Key results for Pepco Group in Q3 FY24

  • Like-for-like revenue down 6.9% at Poundland stores
  • 326 new stores opened in first nine months of 2024 across Pepco Group
  • Group maintains previous guidance on full year EBITDA outlook of around €900m.

GlobalData retail analyst Sophie Mitchell said the Group’s Pepco-sourced clothing and general merchandise range is continuing to underperform in the UK and will need a “rethink” to turnaround.

She explained: “With clothing having been introduced in September 2023 and March 2024, the group had anticipated to see the positive impact of the range through an improvement in sales in the second half of its FY2023/24. As this has not yet materialised, Pepco must rethink its strategy with the range in its Poundland stores as it addresses a very different market to that of its Central European arm.

“For instance, the Pepco clothing range in the UK will be competing with grocers, who often attract grocery shoppers to their clothing ranges through loyalty scheme offers or ad-hoc discounts. Poundland must therefore make its clothing range competitive with this, utilising the loyalty scheme it is rolling out to the rest of the UK by the end of 2024 following pilots in Northern Ireland and the Isle of Wight. Additionally, Poundland must consider the mix of products in its store, not allocating too much space to its clothing range until awareness has improved.”

What next for Pepco Group?

The Group maintains its previous guidance on the full year EBITDA outlook of around €900m, representing EBITDA growth of around 20% over the prior year.

Pepco said it is making “tangible strategic progress” towards rebuilding profitability and has already reached pre-Covid profitability in its Pepco stores.

GlobalData’s Mitchell added: “With this tight discipline around investment, growth in its core CEE market and a focus on rethinking its clothing and GM strategy in the UK, the Group should be well placed to continue to grow in the discount market.”

In 2023, Pepco Group announced its CEO Trevor Masters would step down with immediate effect following weaker sales.

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