Poundland owner Pepco cuts outlook in "increasingly challenging" environment

The owner of Poundland has downgraded its expectations for the year as it warned that its markets in central and eastern Europe were becoming "increasingly challenging".

Pepco slashed its outlook for the second time in a month as it said customers were not as interested as expected in its clothing and general merchandise lines – both of which are key for Pepco.

The business said that revenues in August were "lower than anticipated", and that this has been "worsening in September".

Like-for-like sales turned negative this month and the company’s new shops have performed worse than expected.

"It is clear that we need to refocus on delivering for our customers in our core business while delivering more measured growth," said executive chair Andy Bond.

"We need to improve profitability and cash generation in our established business alongside a more targeted growth plan in markets where we have an existing presence."

Shares, which are listed in Warsaw, dropped 16% after the news. So far this year they are down more than 45%.

Pepco added: "We have not, as yet, seen the expected recovery in gross margins as we continue to work through inventory from earlier in the year bought at a higher cost."

The business now expects earnings before interest, tax, depreciation and amortisation (EBITDA) to reach £648 million (€750 million) in the 2023 financial year, up only slightly from £632 million (€731 million) a year earlier.

"The group has experienced an increasingly challenging trading environment over recent weeks within our core markets of Central and Eastern Europe, with weaker consumer demand for our key clothing and general merchandise categories.

"This has resulted in lower than anticipated Pepco revenues during August, worsening in September, with negative like-for-like sales and weaker than expected performance from new stores."