Dealz discount retailer says Red Sea disruption limited for time being

Dealz parent group says it will need 'a Plan B' if disruption via Suez Canal were to drag on

The Dealz and Poundland owner Pepco can shelter customers from the disruptions to supply and costs caused by Iran-backed Yemeni Houthi militants in the Red Sea provided they do not drag on, its executive chairman has said. 

"I don't think the experience for customers, in our stores at least, will be massively operationally disrupted," Andy Bond said in an interview after the group updated on Christmas trading.

"Our best forecast at the minute is we're able to absorb the incremental cost that we estimate will come through and still achieve...gross margin improvement, (and) our price investment," he said. If disruption continued for a long time, he said, without being specific, the company would need "a plan B".

Some shipping companies have diverted shipments, using the much longer and more costly route around Africa's Cape of Good Hope to avoid the attacks. 

The retail group said the majority of its freight costs are contracted until the end of its third quarter, although the business could face additional surcharges from carriers because of the longer shipping routes.

"While there is limited impact on product availability currently, a prolonged issue in the region could also impact supply in the coming months," the Warsaw-listed discounter, which also owns the Pepco and Dealz brands, said. 

The group reported a 2.3% fall in underlying sales in the Christmas quarter, though the decline tapered over the period.

Revenue was €1.9bn in the three months to the end of December, which is the first quarter of its financial year, a rise of 11% on a constant currency basis, partly reflecting the opening of 203 net new stores, taking the total to 4,832.

In October, the group said it would slow down its store opening programme to focus on rebuilding profitability, but it still plans to open at least 400 net new stores in 2023/24. Shares in Pepco Group, which warned on the outlook twice in September, were up 2.5%, paring losses over the last year to 44%. 

Red Sea disruption

Many shipping firms have already re-routed away from the Red Sea and the Suez Canal, the fastest route from Asian factories to Europe.

Evergreen, the Taiwanese container shipping line, said last month its vessels on regional services to Red Sea ports would sail to safe waters nearby, while ships scheduled to pass through the Red Sea would be re-routed around Africa. 

It also temporarily stopped accepting Israeli cargo. Gram Car Carriers, the Norwegian car carrier, said last month its vessels were restricted from passing through the Red Sea.

And Japan's biggest shipper, Nippon Yusen, has suspended navigation through the Red Sea for all the vessels it operates, the company said this week. It has also instructed vessels near the Red Sea to wait in safe waters and is considering route change. 

Reuters