European discount retailer Pepco Group said that trading had become more challenging in its current quarter as inflation dents consumers' spending power, taking the shine off an 11% rise in first-half core earnings.
Shares in the Warsaw-listed group, which owns the Pepco, Poundland and Dealz brands, were down 4.7% in morning trading Tuesday after it said an uncertain trading backdrop had continued through April into May, with weaker consumer sentiment regarding discretionary spending in response to high inflation, particularly in Central Europe.
"Evidence of this is being seen through lower frequency of visits and customers making different purchasing decisions," it said.
FMCG Continues To Strengthen
It said that while demand for FMCG (fast moving consumer goods) continued to strengthen across its businesses, it was seeing a mixed performance in the clothing and general merchandise categories.
"It's been a softer experience in a couple of categories in Q2 and that's continued," finance chief Neil Galloway told Reuters.
European consumers have been under pressure for over a year from high inflation that has outstripped pay growth.
In economic downturns, discount operators tend to do relatively better than more mainstream peers, as they have lower cost bases and shoppers become more price sensitive.
Food Retailing
In food retailing, Aldi and Lidl are currently Britain's fastest growing operators, while in air travel Ryanair is outperforming rivals.
Pepco Group posted underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of €377 million for the six months ended 31 March, up from €347 million a year earlier.
Revenue jumped 23% to €2.84 billion, as the group's discount offer chimed with cash-strapped consumers and it opened a net 166 new stores, taking the total to 4,127. Like-for-like sales rose 11.1%.
The group said it was confident of meeting its target of at least 550 net new stores in the full year and kept its guidance for annual revenue growth in the 'high teens' and core earnings growth in the 'mid-teens'.
“We remain well positioned and in the second half will see gross margins trending upwards, as we benefit from the tailwinds on certain input costs, including commodity and freight," CEO Trevor Masters said.
Read More: Dealz Owner Pepco Expands European Roll-Out Into Portugal
News by Reuters, edited by Donna Ahern, Checkout. For more retail stories, click here. Click subscribe to sign up for the Checkout print edition.
