Dealz-owner Pepco cuts profit outlook again amid 'increasingly challenging' markets  

Pepco said it had performed resiliently through the first year of the cost of living crisis 

Discount retailer Pepco, which in Ireland owns the Dealz and Poundland outlets, lowered its profit outlook for the second time in less than three weeks, blaming an “increasingly challenging” trading environment in its core markets of Central and Eastern Europe and a loss of focus from management.

The Warsaw-listed group which owns Pepco had performed resiliently through the first year of the cost of living crisis, but had cautioned in July that sales growth had started to slow.

Its shares fell sharply after it highlighted weaker consumer demand for its key clothing and general merchandise categories.

Executive chairman Andy Bond said on a call for analysts that whilst the group delivered good underlying sales growth in July, helped by a promotion of Barbie merchandise, like-for-like sales in the main Pepco business were negative in August and further deteriorated in September with “double digit” declines in the month to date.

The group said it had not, as yet, seen an expected recovery in gross margins as it continued to work through inventory from earlier in the year bought at a higher cost. “We overbought for spring/summer and we’re just struggling to digest all of that product,” said Mr Bond.

The landing of Pepco’s autumn-winter collection in stores had also coincided with record warm weather in Poland and adjacent markets resulting in weaker customer demand. “When it’s 26 degrees you don’t tend to sell coats,” said Mr Bond, echoing comments from fashion retailer H&M earlier this week.

The group said weaker sales, provisions for the value of stock, continued inflationary pressure on costs, and the drag from investment in new stores, meant a further cut to its earnings outlook. It now expects full year 2023 core earnings of about €750m, compared with €731m in 2022.

The group downgraded its outlook earlier this month, when CEO Trevor Masters resigned and Mr Bond took on an executive role. In further changes, managing director of the Pepco business Anand Patel has stepped down and been replaced by Barry Williams, managing director of Poundland. Austin Cooke, the chief operating officer of Poundland, has been promoted to managing director.

• Reuters