Poundland owner Pepco Group has posted a €662m net loss for the year, related to a non-cash €775m impairment charge for Poundland amid the UK discount chain’s “weak performance and outlook”.
Poundland’s like-for-like sales were down 3.6% in the latest set of dismal results for the brand.
Poundland’s €775m impairment charge followed “a significant decline in performance” in the year to 30 September 2024 “and weaker outlook for profitability amid increasing competitive and cost challenges”.
Poundland revenue was flat at €2bn as it grew its estate by a net 13 stores to 836.
Positive growth in fmcg, which accounts for 67% of Poundland revenue, was offset by a negative performance in clothing and general merchandise.
Underlying EBITDA fell from €75m to €28m. EBITDA margin declined by 240 bps to 1.4%, with a weak topline performance compounded by inflationary cost pressures, mainly in labour, and high shrinkage levels.
Poundland has been suffering since a disastrous transition to sourcing clothing and general merchandise at group level at the start of year.
“At Poundland, recent performance has been very challenging, impacted by declines in clothing and general merchandise following the transition to Pepco-sourced product ranges at the start of the year,” said Pepco Group CEO Stephan Borchert, who was appointed on 1 October 2024.
“We are taking swift action to get Poundland performance back on track, focusing on a return to Poundland’s strengths. We will also closely evaluate Poundland’s overall competitive positioning and requirements for future success as an fmcg-led format. We will provide further updates on Poundland during the first half of 2025.”
The trading update said customer reaction to the new clothing ranges was positive, notably around value, but the new offer failed to fully replicate the previous breadth or depth of Poundland’s men’s and women’s ranges and coverage across sizes.
An improved offer in children’s wear, which is a core strength for Pepco, did not offset the shortfall in adult wear, according to the group.
It said there was similar disruption for Poundland’s new Pepco-sourced general merchandise ranges, which were introduced from March 2024, including gaps in seasonal ranges and DIY.
GlobalData retail analyst Sophie Mitchell said Poundland needed to rethink its range and avoid allocating too much space in stores to clothing.
“For the group to see an improvement in the performance of its Poundland fascia in its full-year 2024/25, Pepco must rethink its range strategy in its Poundland stores as it addresses a very different market to that of its central European arm,” said Mitchell.
“The group has stated that it needs to address issues with sizing within its clothing range and other product offer issues within its general merchandise range, such as a lack of seasonal and DIY products.
“However, Poundland must also reconsider the mix of products it has in its stores, avoiding allocating too much space to clothing until awareness of its ranges has improved. Ensuring its clothing range is displayed attractively at the front of stores could aid awareness initially.”
Mitchell said Poundland’s clothing offer was up against those of supermarkets, which made better use of loyalty schemes.
“Additionally, the Pepco clothing range in the UK will be competing with grocers, who often attract grocery shoppers to their clothing ranges through loyalty scheme offers or ad-hoc discounts.
“Poundland must therefore make its clothing range competitive with this, utilising the loyalty scheme it rolled out in the UK in October 2024 following pilots in Northern Ireland and the Isle of Wight.”
Poundland’s sister retailer Dealz Poland saw like-for-like sales fall by 4.8% as it was also impacted by the transition to the new clothing and general merchandise sourcing arrangement.
Pepco Group revenue was up 10.2% to €6.2bn, driven by new store growth. Underlying EBITDA was up 25.2% to €944m, driven by Pepco EBITDA rising 41.7%.
Borchert said: “Pepco Group has very attractive, market-leading retail businesses, providing great product range, value and convenience to over 60 million customers each month across Europe.
“Within the group, I see the Pepco concept itself as our key engine for future strategic and financial growth, particularly in Pepco’s CEE heartland. Pepco generates the vast majority of the group’s earnings and our highest returns on capital – we plan to further build on that strong base. In the year ahead, our core focus at Pepco will be to deliver improved like-for-like revenues. Pepco’s like-for-like performance has been positive since the start of September – an encouraging start.”
Borchert added: “I am excited to join Pepco Group at this important stage in its evolution toward a company focused on targeted new-store expansion, higher capital returns, and growing earnings and free cash flow. We plan to deliver further strategic and financial progress during full year 2025, as I will describe in more detail at our capital markets day in March.”
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