Pepco Group has reported a worse-than-expected 4.3% fall in third-quarter underlying revenue, partly due to supply chain disruption in the Red Sea.
However, the Dealz and Poundland owner maintained its profit guidance for the full year.
The Warsaw-listed group said, ‘The group remains confident that availability issues that have impacted like-for-like sales will ease through the fourth quarter as we mitigate the Red Sea impact by shipping product earlier and channelling stock through different shipping routes.’
Disruption along the Suez Canal has continued through 2024 due to attacks by Iran-aligned Yemeni Houthi militants in the Red Sea.
The group – whose shares are down 44% year-on-year – said like-for-like sales in the quarter to 30 June fell 2.7% at the main Pepco business.
This reflected the earlier timing of Easter this year, slower selling of old stock that needs to be marked down, and supply chain issues impacting the availability of summer stock.
At Poundland in the UK, like-for-like sales fell 6.9%, which the group said reflected challenges related to the introduction of new Pepco-sourced clothing and general merchandise, which are being addressed.
Dealz’s like-for-like sales fell 7.3%. It was also impacted by the transition to Pepco-sourced general material and a highly competitive market.
Christmas Stock
In a later update, the retailer said it is ordering earlier Christmas shipments from China to ensure timely delivery for the key shopping period.
Pepco Group executive chair Andy Bond told Reuters in an interview, "We are very confident that we are going to be in better shape for Christmas than we otherwise would have been because we've pulled stock forward.
"Others will do the same."
Much of the group's Christmas inventory, which historically hits its balance sheet in October, will hit this year in September.
2023/24 Guidance
The group said it still expected 2023/24 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of about €900 million.
This is up from €753 million in 2022/23.
It said a strong year-on-year recovery in gross margin had continued into the third quarter and it was confident of exiting the financial year with an improved like-for-like sales trajectory in the core Pepco business.
After issuing two profit warnings last September, the group said it would slow down its store opening programme to focus on rebuilding profitability.
In February, Pepco announced it would exit the Austrian market.
It opened 37 net new stores in the third quarter, bringing the total amount of stores to 4,882.
Read More: Pepco’s First Half Earnings Boosted By New Store Openings
