Poundland owner sees UK shoppers cutting back on essentials

By James Davey

LONDON (Reuters) -Pepco Group, owner of European discount retailer brands PEPCO, Poundland and Dealz, said a cost-of-living crisis in Britain has seen consumers reining in spending even on essential items.

The Warsaw-listed group said that the absolute levels of inflationary pressure were greater in Central and Eastern European markets, but higher wages in those regions were substantially offsetting this in the short term.

In Western European markets, however, the acute spike in inflation in a stagnant wage growth environment had quickly resulted in absolute lower spending by consumers.

“Specifically in the UK, the cost-of-living crisis has impacted customers’ disposable income as they scale back even on essential purchases in the short term,” Pepco said.

But it said its Poundland business in the UK was trading ahead of pre-pandemic levels, was winning market share and was not perturbed by the UK’s grim economic outlook.

“We’re a value retailer, this is our time, this is when we can really drive our agenda,” interim finance chief Mat Ankers told Reuters.

He said the group invested 35 million euros ($37.5 million) to keep a lid on prices in its first half to March 31, which dented its gross margin by 137 basis points.

A focus on reducing the costs of doing business meant it was able to offset some of its input inflation.

Ankers said the group was pulling three main levers. It was investing in partnerships with key suppliers to secure better terms, driving a more efficient flow of stock, and making the operation of stores more efficient, such as through the introduction of self-service tills.

“The best strategy to navigate the current times is to grow and to create scale,” he said, noting the group opened a net 192 stores in the first half, taking the total to 3,696 across 17 countries.

Pepco said the war in Ukraine, a country which borders three of its largest operating territories, continued to create volatility, albeit with some trading upside driven by the influx of people to core markets.

The conflict was also exacerbating existing supply chain disruption and inflationary headwinds.

Pepco reported a 7.3% rise in first-half core earnings to 347 million euros, in line with guidance and driven by the new stores. Revenue rose 18.9% to 2.37 billion euros, with like-for-like sales up 5.3%.

It said it remained on track to meet its full-year guidance in the absence of any further significant deterioration in the macro environment.

Shares in Pepco were broadly unchanged at 39 zlotys.

($1 = 0.9333 euros)

(Reporting by James Davey; Editing by Sherry Jacob-Phillips, Emelia Sithole-Matarise and Jane Merriman)