European discount retailer Pepco has reported a decrease in like-for-like (LFL) sales during the Christmas quarter. While total revenues reached €1.869bn, with a year-on-year growth rate of 11% at constant exchange rates, LFL revenues dropped by 2.3%. This decline in LFL sales is attributed to the strong comparative period a year ago when sales were up by 20%.

Despite the overall decline, Poundland, Pepco’s UK brand, experienced a 0.9% increase in LFL sales during the same period. This was driven by high demand for fast-moving consumer goods (FMCG) over the festive season. However, the performance of clothing was weaker, indicating challenges in the fashion segment, even at the lowest price level. Dealz, another brand under the Pepco umbrella, faced a 4.6% decline in LFL sales due to planned lower stock availability in general merchandise (GM) categories as it transitioned to Pepco-sourced GM.

Pepco’s revenues were divided into €1.184bn for Pepco, €596m for Poundland, and €89m for Dealz. The group gross margin exhibited signs of recovery, with a 200 basis point improvement year-on-year in Q1 FY24, driven by Pepco. The retailer has been aggressively opening stores in the UK, capitalizing on the closure of the Wilko chain and the availability of well-positioned branches. However, the company is facing challenges with changes in leadership and a weaker performance in the fashion segment.

Notwithstanding these challenges, Pepco anticipates further improvements in gross margin in the upcoming quarters. However, it acknowledges potential obstacles related to industry-wide disruptions in the supply chain, particularly in the Red Sea region. The company highlighted elevated freight rates and delays in container lead times as potential factors that could impact future supply.

Pepco’s CEO, Andy Bond, expressed optimism about the company’s progress in executing its renewed strategy to enhance profitability and cash generation. He emphasized the group’s market-leading customer proposition and profitable store model as crucial factors that will contribute to future success in its core European markets.

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