Pepco: saved by a new store rollout

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Pepco: saved by a new store rollout

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Published Date: 2022-01-14 | Source: INCE|Community | Author: The Finance Ghost

Pepco: saved by a new store rollout

I decided to take profit on my Steinhoff position this week. The share price has run incredibly hard and I'm wondering whether the market has really sat and done the work around the valuation of Steinhoff once all the dust settles. The share price is doing well currently thanks to a vastly improved narrative and strong momentum. It may continue to do well, but either way I'm now watching from the sidelines.

The latest news relates to a trading update by subsidiary Pepco Group, which owns PEPCO and Dealz in Europe and Poundland in the United Kingdom. Pepco has released a trading announcement for the three months ended December 2021.

Group revenue growth was 12% year-on-year with PEPCO as the standout brand with 20% growth. There's a huge expansion drive underway which is a key driver of growth. The group opened a whopping 161 new stores in this quarter, of which 146 are PEPCO stores and 15 are Dealz stores. The PEPCO rollout included 55 new stores in Western European markets like Italy, Austria and Spain.

A closer read reveals that group like-for-like growth in constant currency was just 0.7%. This strips out the impact of currency swings within operations. Far more importantly, it also strips out the benefit of having opened new stores. This is the best number to help understand growth in the underlying stores.

Moving down another level, PEPCO like-for-like growth was 0.0%. Egg. Zero. Poundland managed +1.5% in like-for-like growth.

Whilst it is true that the PEPCO footprint is wider than just Poland, I can't help but contrast this to the operational update from Polish property fund EPP that I wrote about earlier this week. The EPP update was extremely bullish about Poland and a rebound in shopping. The PEPCO commentary notes supply chain disruptions and Covid restrictions limiting the ability of customers to shop. Perhaps things are worse in Western Europe than in Poland at the moment, but something doesn't add up for me.

As noted recently in InceConnect, CEO Andy Bond will leave Pepco at the end of March for health reasons.

A change of leadership always brings some uncertainty to a business. Shareholders will hope to see an improvement in like-for-like growth, as a store rollout isn't a sustainable way to grow over the long-term.





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