Steinhoff’s European discount retailer Pepco says it is on track to meet its full-year core profit target in spite of the war in Ukraine, which borders three of its largest operating territories.
Pepco, the owner of the discount Pepco and Dealz brands in mainland Europe and Poundland in the UK, said in an update on Thursday that revenue rose 17.5% to €2.37bn (R38.7bn) in its half-year to end-March, while core profit is expected to rise by as much as 8%.
Pepco, which has a strong East European focus, says it serves the “mom on a budget” market, with its offering including discounted homeware, toys, pet goods, as well as clothes and cosmetics, while Poundland stores in the UK also offer frozen food.
Underlying earnings before interest, taxation, depreciation and amortisation (ebitda), or core profit, for the half-year is expected to be in a range of €342m-€350m, the group said, from €324m in the previous year.
“Within this range, the group remains on track to meet guidance for the full-year in the absence of any further significant deterioration in the macro environment,” it said.
Investment holding company Steinhoff holds 79% of Pepco, which contributes almost half of group revenue. Steinhoff raised about €1bn through Pepco’s listing on the Warsaw stock exchange in 2021, most of which was used to reduce Steinhoff debt.
Pepco operates from more than 3,500 stores, with more than 1,000 in Poland, more than 300 in Romania and over 200 in Hungary, all of which share a border with Ukraine.
Russia’s invasion of Ukraine has prompted unprecedented sanctions against the country and is expected to put economic pressure on Europe, where food and fuel costs are surging.
“While the impact of Covid-19 progressively eased over the second quarter, the invasion of Ukraine, a country which borders three of our largest operating territories, created further volatility and unpredictability,” Pepco interim CEO Trevor Masters said in a statement.
“We are very pleased with this set of results, considering the global disruption faced by our business,” he said.
“We have maintained our focus on our strategic priorities, in particular our new-store growth and our continued refit programme, both of which continue to delight our customers and deliver strong financial performances.”
The company, which has succeeded in budget-conscious Poland and neighbouring countries, has more than 50-million customers. It is also planning further growth in Western Europe, despite many retailers struggling with expansion. Even the world’s biggest grocer, Walmart, has been burnt in foreign markets.
Pepco’s goal is to effectively treble in size by opening 8,000 stores over the next 20 years.
It reported on Thursday that the Pepco brand of stores had a record 202 net new store openings in its first half to March 2022, including 84 in the West European markets of Austria, Italy and Spain, where it said initial performance was strong.
Masters said even as it expects the market to remain volatile while the war continues and inflation rises, “we will continue to drive our significant growth agenda, while reducing our cost of doing business”.
Update: April 21 2022
This story has been updated with additional information.
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