Poundland Struggles in Q3; Pepco Group plans revival

European discount retailer Pepco Group delivered first quarter revenue of 1.9 billion euros, with constant currency growth of 3 percent versus last year. However, LFL revenues declined 1.1 percent, with a positive performance from both Pepco and Dealz offset by continued challenges in the Poundland business.

In December the company’s CEO Stephan Borchert told Reuters that Pepco is mulling strategic options for struggling Poundland

“It is important to look at every strategic option for this company to bring it back on track,” he said.

Pepco Group initiates measures to boost Poundland business

Poundland experienced challenging trading conditions in the quarter, with LFL sales down 7.3 percent, largely due to continued underperformance in clothing and general merchandise, with double-digit LFL declines across both categories. LFL in Poundland’s core FMCG category was also negative, against a highly competitive environment in the UK.

The company added that the topline underperformance came alongside a contraction in gross margin, impacting Poundland’s profitability in the period versus the company’s expectations, as well as against the prior year.

Commenting on the strategy to boost the Poundland business, a Pepco Group spokesperson said: “We are refocusing on Poundland’s long-time strengths, such as recently increasing the number of core items at 1 pounds or below from 1,500 to almost 2,400 in all UK stores. We can’t avoid that the UK retail environment has got tougher and we recognise that Poundland’s recent trading has been challenging.”

The company expects the above measures to moderate negative sales performance for Poundland through the year. Poundland will not open any new stores during the year.

Highlights of Pepco Group’s Q1 results

The Pepco brand grew like-for-like sales by 1.4 percent, which was its first positive LFL quarter for more than a year. Dealz reported LFL growth of 6.6 percent partially offset by trading weakness at Poundland.

Commenting on the first quarter update, Borchert, said: “The group delivered a mixed performance in its first quarter, with a strong performance from both the Pepco and Dealz brands, partially offset by Poundland’s ongoing challenges.”

The company said in a release that getting the UK business back on track is a key priority for the group. Driven by strong progress at Pepco, the group’s gross margin improved by over 140 basis points year-on-year.

In the quarter, the company opened 63 net new stores, primarily in Pepco’s Central and Eastern European heartland and the group reached its 5,000th store milestone.