Pepco ‘actively exploring separation options’ for Poundland as it moves away from FMCG

In an announcement ahead of their Capital Markets Day presentation, Pepco said its “ultimate ambition” is to operate under a single Pepco format around higher margin clothing and general merchandise, as the FMCG parts of the business have been a “drag” on the group’s financial performance.

It continued to say it is evaluating all options to separate Poundland from Pepco this year which could include a potential sale.

The UK’s growing challenging retail landscape and additional tax changes stemming from the budget has only exacerbated things for Poundland’s cost base. The retailer suffered a like-for-like sales decline of 7.3% in the quarter to December 31 2024.

As Pepco explores its options, Barry Williams will return to Poundland in a permanent role as managing director with immediate effect.

Pepco will focus on the one format going forward and its sees significant space to open stores and continue growing across central and eastern Europe, along with select western European countries.

The group will also look at strategic options for the Dealz business, including a possible divestment in the medium term, along with a strategic review of the Pepco Germany business.

Pepco Group chief executive Stephan Borchert said: “We are taking clear strategic action to focus on the Pepco brand as our single future format, to move away from FMCG and create a simpler business focused on higher margin clothing and general merchandise. 

“Pepco will continue to be the engine of the Group’s earnings potential, and its strong customer offer and price leadership give it a compelling ‘white space’ opportunity to drive further profitable growth in its Central and Eastern European heartland, as well as select markets in Western Europe.

“The Board and I are actively exploring separation options for Poundland, including a potential sale, from the Group, with consideration also given to the separation of the well-performing Dealz Poland over the medium term. 

“Barry Williams did a great job as Managing Director of Pepco, returning it to like-for-like sales growth, and I am confident he will play a pivotal role in getting Poundland back on track, given his previous success there.

“Our latest trading period – with continued positive Pepco like-for-like sales – reflects the brand’s momentum and underpins our focus on the business that accounts for the vast majority of the Group’s earnings and our highest returns on capital.”

Current trading shows Pepco Group like-for-like sales are up 1.5% in the eight weeks to March 2, offset by Poundland which experienced negative like-for-like sales.

The company said it is “confident” that Pepco Group will deliver profitable growth in the year through “further operational improvements and enhancement of the core customer proposition”.

Poundland is expected to deliver underlying EBITDA of €50m (£42m) to €70m (£59m) during the current financial year, as it battles challenging trading conditions, margin pressures, and higher operating costs.

More details will be outlined from the group’s Capital Markets Day investor presentation.