Continued strategic progress & resilient peak trading performance across all retail brands
The fast-growing pan-European variety discount retailer, Pepco Group, owner of the PEPCO and Dealz brands in Europe and Poundland in the United Kingdom (UK), today reports a trading update for the first quarter ending December 2020.
Group Overview
Pepco Group continued to trade resiliently and make strong strategic progress in the first quarter – which represents approximately one third[1] of full year revenue and contributes a more significant proportion of earnings – despite the impact of significant Covid related lockdown restrictions on consumer behaviour impacting many key operating territories. Trading stores[2] performed strongly delivering 5.5% like-for-like (“LFL”) growth, similar to recent historic levels, clearly demonstrating both the continued strength of the business and proposition and its ability to rebound quickly when Covid related restrictions were previously lifted and will eventually be in the future.
Strategic progress included increasing the size of the store portfolio while strengthening the customer proposition in all brands. PEPCO added 87 new stores in both Central and Eastern Europe (CEE) and Western Europe (WE) and enlarged or relocated a further 18 stores, including opening further new stores in Italy, its first Western European market, and opening the first stores outside the EU in Serbia. Each of these countries is trading measurably ahead of expectation. The roll-out of the Dealz format continued in Poland, Republic of Ireland and Spain.
318 existing stores were updated through store conversion programmes in both PEPCO and Poundland, including 38 refits in Poundland which serve to introduce both a chilled and frozen proposition alongside the roll out of new price points to all categories. The acquisition and integration, in the quarter, of Fultons Foods adds significantly to Group capability in this key expansion category of frozen food.
Trading Stores[2]: Like-for-Like Revenue
Trading stores, that were open for the full duration of any week, performed positively in the quarter delivering LFL growth of 5.5% against a challenging comparative of 3.9% in 2019.
PEPCO
As a non-essentials retailer, PEPCO was most impacted by Covid related closures with 3,273 (c 12%) of trading weeks across the quarter lost to full closure and with periods of full country closure, primarily in November and late December impacting Czechia (six weeks) and Slovenia (seven weeks). Stores not impacted by Covid closure, traded strongly delivering LFL growth of 6.6% consistent with that delivered in the first quarter of FY20, underpinned by continued investment to strengthen the customer offer.
Poundland / Dealz
As an essential retailer, Poundland was able to trade throughout the quarter, albeit experiencing significantly reduced footfall as our customers sought to both consolidate their shopping activity and avoid shopping centre or high street locations, where the majority of our stores are located. In the context of a volatile trading environment, trading store LFL growth of 4.3% is considered likely to have resulted in market share gains in the UK, providing further evidence of the successful change programme the Poundland brand is undertaking.
All Store Revenue Performance
Group Summary
Revenue growth, on a constant currency basis of 9.1% (reported 3.9%), reflects the ongoing expansion of the Group’s PEPCO and Dealz formats where, at the close of the quarter, the Group traded from 3,218 stores, an increase of 14.6% over the year and LFL of -2.1% impacted by store closures, enforced in Europe and voluntarily in the UK, which primarily fell into November and late December.
PEPCO
PEPCO expanded its store portfolio by over 15% year-on-year, opening 87 net new stores in the quarter with an expectation of opening around 300 stores in the full financial year. In addition, it upsized or relocated a further 18 stores. Recognising the significant future store capacity in all the territories that it operates, PEPCO opened stores in the quarter in all of its’ 12 existing territories, with these stores trading collectively ahead of expectation.
Poundland / Dealz
Poundland’s revenue benefited from the continued strong performance of the PEP&CO clothing brand, which is present in 342 stores, and the continued extension of product ranges to price points above and below the £1 anchor price point. This included the successful launch of a widened Homewares proposition, under the PEPC&CO brand. Multi-price participation increased to 23.2% of revenue (FY20: 14.1%).
The mainland European Dealz business continues to develop positively, having built the necessary confidence in both the customer proposition and the business model economics to accelerate the store roll-out programme. In the quarter, 18 Dealz stores were opened, increasing the portfolio by 19% versus the year-end position to 114. Our intention remains to open up to 70 new stores in the full financial year.
Cash and Net Debt
The Group continues to be strongly cash generative and maintained all of its targeted growth investments across the quarter. Closing cash of €548m (FY20: €392m) and net debt of €187m (FY20: €332m) reflect continued underlying business growth and actions agreed with key suppliers that enhance the Group’s working capital cycle.
Commenting on the results, Andy Bond, CEO Pepco Group, said:
“It is pleasing that once again our disciplined adherence to our clear growth strategy combined with a focus on day-to-day retail execution has allowed us to successfully navigate a turbulent trading environment. Our revenue performance clearly signals the strength of each of our retail brands and customer offers and our resilience to short-term Covid disruption.
“We anticipate that the consumer backdrop will remain challenging in the short-term. However, with our established growth strategy, centred on significant future store expansion within a structurally advantaged discount retail segment, and strong financial base, we believe that our future growth opportunity is greater than a year ago. Accordingly, we remain confident about our prospects for continued growth across Europe in the balance of the financial year and beyond.”
Explanatory Notes:
1. Q1 revenue as a proportion of the last 12 months’ revenue, based on Q1 FY20 LFL revenue and Q2 to Q4 FY19 total revenue, in order to minimize the distortion from new store growth.
2. Stores designated as Trading Stores, traded for the full seven days within each individual accounting week irrespective of other restrictions including part week closure, limitations on customer numbers and reduced customer offer.
3. LFL revenue growth is defined as year-on-year revenue growth for stores open beyond their trading anniversary.
4. Revenues are unaudited with foreign currency revenues translated at the average rate for the month in which they are made.
5. Year-on-year revenue growth on a constant currency basis.
Notes to Editors
Pepco Group
Pepco Group was established in 2015 and comprises two strong, independent value retailers – PEPCO and Poundland, which also trades internationally under the Dealz brand, together with a global sourcing arm, PGS, which works very closely with both operating companies. Together PEPCO and Poundland operate across some of Europe’s largest economies. Pepco Group now has c.3,200 stores in 16 countries including the UK, the Republic of Ireland, Spain and across the CEE region, employing c. 35,000 people.
About PEPCO
After more than 14 years of continuous growth, PEPCO now serves over 20 million customers a month, offering apparel for the whole family, household goods and toys at the lowest prices. With its Head Office in Poznan in Poland, the company has around 17,000 employees in 13 different countries in Central and Eastern Europe, with the largest footprints in Poland, Romania, Hungary and Czech Republic.
The first 14 PEPCO shops opened in Poland in 2004. PEPCO expanded into the Czech Republic and Slovakia in 2013 and between 2015 and 2017 opened in Croatia, Hungary, Lithuania, Romania and Slovenia. In the three-month period under review the company has opened 87 net new stores in total across the PEPCO estate.
PEPCO is widely recognised as one of Poland’s strongest brands and most dynamic companies. It has regularly won the Forbes’ Diamond Award as one of the country’s fastest-growing companies and the Superbrand Award for quality and trust among Polish consumers.
About Poundland
Since opening its first store in Burton-upon-Trent in 1990, Poundland, has built a network of 917* stores in the UK and the Republic of Ireland, offering top brands and great quality own brand products, that provide customers with amazing value every day.
Nominated by Retail Week as Value Discounter of the Year 2019, it now has c.18,000 colleagues who serve over seven million customers every week from Wick to Weymouth, Londonderry to Lowestoft and Holyhead to Hastings.
Poundland offers thousands of quality products in store with over 1,000 well-known brands in 17 shopping categories including food and drink, health and beauty, household, gardening, DIY, Pet, Stationery, Books, DVDs and Toys. Around nine in ten items at Poundland are available at its original £1 price point and over the last 12 months it has built out new ranges by introducing items from 50 up to £10 that are underpinned by the same philosophy of simplicity and amazing value.
Poundland also trades internationally through the Dealz brand with a building store base in both Poland and Spain. Within the UK it has also rolled out its fashion brand PEP&CO to approximately 300 of its larger stores. PEP&CO offers customers a full range of women’s, men’s and kids’ fashion and bringing new style to Poundland with simple low pricing on family fashion that’s hard to find on local high streets. PEP&CO has been nominated in the 2019 Retail Week Awards as Private Label of The Year.
*include Fultons stores