Good morning, everyone, thank you for joining our Q3 fiscal year 2026 conference call. I'll first run, as usual, through a few highlights from our Q3 performance, followed by some comments on our strategic positioning as a now pure-play Pepco business before handing over to Willem, who will run you through the specifics surrounding the sale of Dealz and the resulting strengths and financial profile of the group, as well as our Q3 trading in more detail. Let me first highlight that, unless otherwise stated, all the figures throughout this presentation exclude Dealz, and the like-for-likes shown are excluding FMCG. Let's turn now to slide three, please. Slide three. We delivered strong revenue growth in Q3, up 8.5% to EUR 1.1 billion, and like-for-like revenue growth of +5.4%. After a trickier start in April, we returned to accelerated momentum in May and June.
This performance was driven by very solid performance in North and South CEE, which both delivered +3.6% like-for-like revenue growth, as well as strong growth in Western Europe, where we continue to see an exceptional response to our customer value proposition following the exit of FMCG. In Q3, Western Europe delivered like-for-like revenue growth of 15%, reinforcing our conviction to accelerate our rollout in the region from fiscal year 2027 onwards. On a two-year basis, Q3 like-for-like revenue was up by approximately 10.2%. We announced the agreed sale of Dealz on the 3rd of June. This completes our exit of FMCG and our goal of becoming a simplified and streamlined group focused solely on Pepco. I will touch on this more in the following slides.
Lastly, as previously announced, we plan to launch an up to EUR 400 million tender buyback, which we remain on track to complete before the end of this financial year. We'll have more news on this in due course. Turning now to slide four. I wanted to take a moment to really highlight the strategic milestones we've hit over the past 12-18 months in our effort to simplify the group and turn around our performance. We've been clear on our intention to exit FMCG since the Capital Markets Day in March 2025. We started with the Iberian Pepco Plus conversions in March-August last year. We completed the sale of Poundland in June last year, which was a pivotal milestone for the growth trajectory of the group. Last month, we announced the agreed sale of Dealz.
We have now completed our goal of becoming a pure-play Pepco business focused on one highly scalable brand and efficient format with a compelling customer value proposition, strong business momentum, a strengthened financial profile, and a focus on delivering sustainable and profitable growth as well as enhanced shareholder returns. If you go on to slide five, let me briefly remind you of the strongholds of a pure-play Pepco company. Firstly, we operate our Pepco stores on very strong economics. We have a standardized formula across our geographies and can open new stores in a very efficient way. These stores pay back quickly, generating high returns and significant cash, which is more than sufficient to both reinvest in accelerated growth and enable sector-leading returns for our shareholders.
You've seen this through our completed share buyback program, the announced EUR 400 million tender buyback, and our commitment to increase our regular dividend payout ratio over time to approximately 40%. In summary, with our transformation efforts over the past 12- 18 months, we have now created a self-funding and profitable growth engine. Lastly, on slide six. Over to slide six, please. Before I hand over to Willem, I would just like to recap on our strategy for growth as outlined in our March 2025 CMD. Pillar one is now complete. Our overall strategy remains unchanged, but we are now able to accelerate from a strengthened platform and drive continued strong growth for the group.
We're focused on top-line growth through measured expansion CEE, our accelerated rollout to ensure we win in Western Europe, digitizing and enhancing our customer proposition, as well as upgrading our core operating platform, which underpins the success of all our pillars. Continued execution in line with our strategy ensures we are well positioned for growth going forward. With that, Willem, over to you.
Good morning, everyone, and thank you for joining the call. I will talk you through our quarter three trading shortly, but let me first spend a few moments on the Dealz exit. Next page, please. Hopefully, you will all have seen our announcement on the 3rd of June, but let me cover the key elements of the transaction now as a quick reminder. We have agreed the sale of 100% of our Dealz shares to Modella Capital, a specialist European retail investor, for a nominal consideration of GBP 1. This was subject to customary antitrust approval, which has now been received by Modella and completion is expected imminently. We will provide a further announcement, and future announcement when appropriate.
As part of the transaction, we will provide an 18-month asset-backed lender facility of up to GBP 20 million, and importantly, we retain the right to 35% of the proceeds of any future sale, providing potential upside further down the line. The sale of Dealz provides many benefits to Pepco, as Stephan touched on earlier. It not only completes our exit of lower margin FMCG products, it increases our focus on our core Pepco business, drives enhanced profitability and returns on capital, and improves our cash generation. Turning now to slide nine, which shows this more clearly. Here you can see the comparative financial performance of both Pepco and Dealz, and it's clear to see why we are in a stronger position following the sale. In H1 2026, Pepco generated strong like-for-like growth of +4.6% versus the -8% like-for-like at Dealz.
The gross margin of Pepco was almost double that of Dealz. In addition, the absolute EBITDA generated by Dealz was negligible at the group scale, impeding the profit growth of group. There will be some impact of revenue following the exit as Dealz generated around 7% of group revenue, but the material improvement to group profitability and overall financial performance is more than apparent. In the quarter three release, which we disclosed this morning, we included detailed financial statements for H1 on a pre- and post-Dealz inclusion basis to allow you all to properly understand and model the shape of Pepco going forward. This data is for H1, as we appreciate that many of you want to understand the impact on half year for fiscal 2026 and fiscal 2025 to assist you in modeling Pepco going forward.
For this purpose, we've also provided updated guidance for fiscal 2026 for Pepco going forward, but more on that later. Let me turn now to our trading performance in quarter three. To be clear, what we are showing here is the trading performance of Pepco only. As at the H1 or half year results, we are showing performance in our new geographical split, North, South, and West Europe. You can see there's countries which make up each region in the footnotes at the bottom of the slide. In quarter three, we delivered revenue growth of 8.5%, driven both by our new store opening program and strong like-for-like growth, excluding FMCG, of 5.4% in the quarter. This is driven by a 15% like-for-like growth in Western Europe, further validating our plans to accelerate store openings in the region from fiscal 2027, and 3.6% growth in both North and South CEE.
Solid performance for both regions in a competitive market. We no longer report it as a standalone segment, but for clarity, Poland continued to deliver positive like-for-like of 2.2% in quarter three. Our like-for-like performance was supported by improved availability, continued focus on our price leadership position, greater full price contribution, as well as favorable warmer weather in May and June after trickier conditions through April, in which we also were negatively impacted by the timing of Easter, which benefited March this year, and we commented on in the half year results. Across the first nine months of fiscal 2026, we delivered like-for-like revenue growth of 4.9%. The absolute revenue growth stood at 6.4%.
As we've mentioned previously, our reported growth was materially impacted by the exit of FMCG. You should expect our revenue growth in quarter three and quarter four to accelerate versus quarter one and quarter two, as we led prior year periods with significantly lower levels of FMCG contribution. For quarter three, this is already noticeably visible in our reported results. Turning now to slide 11, where this is highlighted. I want to take a moment to focus on the trajectory of reported versus excluded FMCG like-for-likes. In the chart on the right, it is clear to see these metrics converging as the prior year FMCG contribution reduces through the year, but to the higher levels, as we previously had indicated.
In quarter three, there is just 1.2% gap between both metrics. Going into quarter four, there will be negligible impact from prior year FMCG contribution. You should expect these numbers to converge even further. As we already disclosed in our H1 results last May, we continue to see stores that have lapped the FMCG exit in Iberia performing strongly. As we move into fiscal 2027, we will no longer report two LFL metrics as they will be one and the same. On to slide 12. As I mentioned earlier, the group is in a much stronger gross margin position following the exit of Dealz and the exit from FMCG in Iberia. In the chart on the right, you can see our pro forma margin progression, which for nine-month FY 2026 was up 360 basis points versus half year one, fiscal 2025.
This is driven in part by the product margin, as we have replaced lower margin FMCG sales with higher margin clothing and general merchandise sales, i.e. mix. It's furthermore supported by continued Forex tailwinds as well as efficiencies within our supply chain and sourcing. Let me now finish with our revised guidance on slide 13 before I hand back to Stephan to conclude. Next slide, please. Here you can see a breakdown of our previous Fiscal 2026 guidance in the gray box on the left. Now our new restated guidance for the group excluding Dealz in the pink box on the right, along with the revised pro forma fiscal 2025 base in EUR for the key financial metrics such as revenue, EBITDA, and PAT. This clearly underscores the strong financial performance of Pepco.
Crucially, this is not just a guidance restatement, as we have upgraded the guidance for several of these metrics, such as gross margin and EBITDA, following the strong performance of Pepco year to date. Our revenue growth guidance remains the same at 6.8%. As already indicated, we expect to generate accelerated revenue growth in H2, as already visible in our quarter three constant currency revenue growth of 8.5%. This is a clear acceleration compared to H1, where constant currency revenue growth stood slightly below the range at 5.5%. We now expect gross margin for Fiscal 2026 to be around 51%. Focus on deliver mid-teens EBITDA growth, up from the previous low teens guidance. Our PAT growth will be above 50%, but from a higher base of EUR 234 million excluding Dealz. Our unlevered free cash flow is expected to be EUR 300 million versus the previous EUR 250 million.
Our net new store guidance remains the same at 250 stores. We will be updating our mid-term guidance and guidance for Fiscal 2027 at our Fiscal 2026 year-end results presentation in December. With that, let me hand back to Stephan.
Thank you, Willem. Let me now quickly summarize on slide 15 before we open up to your questions. I won't cover these points in detail. I think we've addressed and covered them sufficiently throughout the presentation. Instead, I want to focus on the strong execution the team have demonstrated, transforming this group from a multi-brand, disjointed proposition to a simplified business with a clear growth trajectory and significantly improved financial position, all of which has been achieved in a very short time period.
As we move forward as a pure-play Pepco, I'm hugely excited by our growth prospects. We have achieved a lot already, but there's more ahead as we continue our disciplined expansion in both new and existing geographies. We remain strongly focused on delivering sustainable, profitable growth and, of course, on providing enhanced returns to our shareholders. With that, let me now hand over to your questions. Thank you very much.
Thank you very much, Mr. Borchert. Ladies and gentlemen, once again, if you'd like to ask an audio question, please press star one on your telephone keypad. Our first question this morning will be coming from Michael Jacks of Bank of America. Please go ahead. Your line is open.
Hi. Good morning, Stephan, Willem. Congrats on a strong quarter, and thank you for the presentation. My questions relate mainly to sourcing. Firstly, could you please give us a sense for where shipping contracts settled in percentage terms year-over-year? That's my first question. Second question, could you please elaborate some more on the sourcing tailwind, specifically on the relative contributions from favorable trading terms in China versus structural improvements that you've made to your sourcing operation? My final question, are there any seasonal factors in Q4 that typically weigh on gross margin relative to Q3? Thank you.
Yeah.
Yeah. Sorry. Thank you very much for your great questions. What I think I can very comfortably say here today is the following. First of all, yes, I think we are not the only ones stating that the situation in China is quite difficult but interesting at the same time. Suppliers do have lots of spare capacity, and I think we continue to see, on the one hand, opportunities in sourcing and our gross profit margin expansion to an extent also is based on sourcing efficiencies that will continue to increase. However, going forward, it will be seen which strategic role China has and can play in that respect. We are continuously looking at, in a way, balanced sourcing portfolio for us, particularly for the general merchandise categories.
Overall, we are very comfortable actually with the sourcing situation in terms of intake margin from the China market situation. Shipping, as you know, we do have quite long-term contracts. Again, cannot disclose the number, but we are very, very pleased with our closed contract for next year. We are contracted for next year, and again, without disclosing the details here, but we feel we have achieved a very favorable solution here.
Yes. For me, you also asked on the gross margin delivery quarter four over quarter three. We have guided on a gross margin around 51%, and I want to be very clear and upfront about that. As you are used from us, slightly prudent around can also mean above. I just want to clarify that upfront because I think it's a key metric. We are very happy with our gross margin momentum at this point in time. We've been assisted by stock freshness in our stores, which are at historically very high levels, as we indicated already in the H1 results presentation. That trend continues. We've seen excellent sell-through in June and May, which helped us continue this very favorable trend on stock freshness. Intake margins are well managed and under control, reflecting the trends that Stephan has already highlighted just before.
We are quite confident on our gross margin delivery trajectory. In particular also as we are cementing a number of the key inputs, as Stephan just hinted on shipping, we are cementing our favorable rates in a new contract, which was a significant step down from historically higher rates. That momentum is sustained. We're having good results on our Forex hedging, again, well into 2027.
We see ex-works prices in China and other key supplier markets also holding and being favorable to us. We are confident on gross margin at this point in time for the remainder of the year, as we highlighted in our guidance. That's gross margin. As seasonal factors, I wouldn't overplay them, but I also would not encourage you to just simply extrapolate. We guide on around 51%. It's prudent. There may be some upside. The key metric for you to focus on is the mid-teens EBITDA growth, where we are clearly committing to that number.
Did I answer your question?
Very helpful. Thank you.
Yes.
Yes. Very clearly. Thank you.
Thank you much, sir. Now go to Matt Clements of Barclays. Please go ahead.
Yeah. Good morning, both. Thank you for taking the questions. Two, if I can. The first is on Western Europe. The brand and the offer seems to be resonating very well, particularly in Spain and Italy, obviously. Can you give a bit of color about who you're taking share from and how your stores are performing when there's overlap with some of the larger integrated banners like Primark, JD, Action? That's question number one. The second question would be on digital. It's been two months since we last heard from you. You obviously had very encouraging early performance in Poland with the app. How has scale and engagement evolved in Poland, and when will we see the rollout into other markets begin? Thank you.
Thank you, Matt. Great questions. Let me go to Western Europe first. You asked on overlap. Look, first of all, I think one thing is very clear. Our value proposition really resonates extremely well, I think above our expectations, really, with the Western European consumers. This is really across the board in both categories. As you know, we operate in two main categories. It's really in apparel and in general merchandise where we see those strong performances and the strong acceptance of consumers. The overlap is not of concern really for us. As you know, we operate in many areas. We have three segments in those markets. We, at the moment, do not have any issue really on that. We do measure cannibalization in CEE markets particularly, but that is not of a big concern for us.
Also because we are, as you know, able to operate in much smaller catchment areas. That is where the focus for us lies, really. You won't find larger boxes, particularly the integrated players, in those areas. Very, very pleased with Western Europe going forward. Digital, yeah, we haven't disclosed numbers this time. We will talk about this in more detail in December. I can reassure you, we continue to scale up, and we particularly continue to see stronger engagement levels. The share of sales that goes through the app and either the swipe or the coupons is continuously and strongly increasing, and is above benchmark at the moment. We are very pleased with that, but we will discuss that a bit more in detail in December. We are planning a rollout.
We haven't guided which country yet, but we definitely will accelerate our rollout of the systems into countries where competitive pressure is high. You can imagine it's the adjacent markets. Could be Czech Republic, could be others. We wanted to give ourselves the time for the proof of concept in Poland, setting up further commercial infrastructure around that, refine some of the technologies. Remember, we've just launched it, really. Once that's all done, we will accelerate rollout because it's a super scalable, very modern digital infrastructure, which enables us to do that fast if need be.
Very clear. Thank you.
You're welcome.
Thank you much, sir. Ladies and gentlemen, as a reminder, if you have any audio questions or follow-up questions, please press star one on your phone keypad. We'll now go to Michal Potyra of UBS. Please go ahead, sir.
Hi. Good morning, and congrats on the strong numbers. I have two follow-up questions, please. The first one, continuing on Western Europe, if you could maybe provide some color on the EBITDA level profitability in Western Europe and the gap to CEE. Do you believe you can close that gap? That's the first question. The second, a very general question, but maybe you could comment a little bit on the consumer health and demand trends across your key markets. Thank you.
Okay. Michal, let me start with the first question on Western Europe. Clearly, Western Europe has a lot of potential as we still have infrastructure which is not commensurate with the forward-looking revenue potential that we see in the market. I clearly allude to the distribution network that we already, for Iberia, explained. We opened Guadalajara about now a year and a half ago. That has helped us bring distribution costs down, but it's operating still below full scale. Therefore, there's more margin potential, EBITDA margin potential in Spain as we start to see fixed cost attrition and benefits from scale. The same in Italy, where we continue to ship product from CEE into Italy. You can imagine that is not the most efficient way to serve a big market where we have significant expansion plans.
We disclosed in the half year that we are very confident on our EBITDA progression in Western Europe. We provided, I think, some information in the slides. There is still a gap, but it's closing, and with all the actions and scale advantages that we foresee in Western Europe building up over the coming years as we accelerate. We expect Western Europe to be at group levels from a financial contribution point of view. Yeah. I'll take up the second one, Michal, on consumer.
Maybe just to add to what Willem said, we've discussed in the last call geographic expansion and clearly said we want to focus on the existing markets because the operating leverage potential is so much higher, with a now liberated, highly simplified structure at scale. That is why we are confident on the EBITDA development in Western Europe.
On the consumer, yeah, it's a mixed bag, right? On the macros, we see obviously positive developments, so inflation coming down or stabilizing. We believe, here at Pepco, that the disposable income that is available for retail is still much there, but consumers seem to become, the sentiment numbers are negative, they are difficult, and that varies. CEE is a bit better than certain parts of Western Europe, particularly Germany and France. Overall, it really only says two things. One is there is still a wallet to gain for retailers from consumers. Consumers become and have become, after so many years of distress, if you want, they have become more selective, extremely selective. They're looking for real values. They're looking for honesty and truth in the product offering, whether that is quality, whether that is price, pricing strategy. We feel perfectly positioned at this.
We see more customers coming to us. We see volumes growing, but we also see AUP growing in certain categories. This shows us that we are able to attract a maybe lower middle-class segment that is trading down to us as well. Therefore, I think going forward, we are, as Pepco at least, quite confident with the consumer sentiment here in Europe for us. I hope that did answer your question.
Thank you. Thank you for that. Maybe if I may have one follow-up question on competition. We have seen those EUR 3 surcharges implemented for cross-border online trade in Europe.
Mostly coming from Chinese competitors. We have seen actually players like Temu adding that additional fee at the checkout. Are you expecting any kind of incremental increase in the demand in your stores on the back of this, or it wasn't that disruptive to you so far? Thank you.
I think, no. Look, I think we had this question on the other side before several times. Do we see massive negative impact? We haven't really seen it before. We know there is overlap in our customer shopping behavior, particularly with Temu, less so with Shein, but with Temu. It hasn't really had a negative impact on visiting frequency and basket of those customers who also buy there. Now, in reverse, that doesn't affect us either so much. I think we do really follow, whether it is Action or Temu or others, we are following a very different shopping journey and a very different value proposition with a very curated, to a large extent, not so discretionary assortment and product offer at really price leading levels. I think therefore, we are not so impacted.
Of course, we are looking at it very closely, and those are very large players, and one is, of course, passing this on to customers. I don't think that serves them well to do so. We of course know that also in the background, there is a lot of dynamics around setting up local seller models, local distribution models, and so on. We are continuously watching it and seeing what is happening there. Frankly, we neither had a strong negative impact, nor do we probably have now a positive impact on that.
That is clear. Thank you.
Super. Thank you.
Thank you very much, Michal. As we have no further audio questions at this time, Talina, I'll hand the call over to you for any questions submitted through webcast. Thank you.
Thanks. We've got some questions from the webcast. First question from Harry at Vergent AM. How much is the impact on FX on margins? Do you see any pressure to margins in FY 2027 from FX, and what is the longer-term ceiling on GPM?
Shall I take that one?
I have to disappoint you, Harry, here. We're not going to give any guidance on fiscal 2027 and midterm and long-term guidance, which we will provide to the markets in December. I have to be firm on that. Look, Forex has been a tailwind, as we explained through the year. End of last year and half year, we were very clear about Forex, but it's one of many factors. We commented on that. We have supply chain efficiencies.
We have fixed cost distribution benefits. We have ex factory prices that were very favorable in local currency as well. There's a whole string of measures that we've taken which have helped us sustain this very strong gross margin performance. We're now focusing on closing the year, and we will be providing you with more details on fiscal 2027 and beyond in December. I know it doesn't answer your question, this is what I can share with you.
Thank you. Next question is from Jakob at AZT. What does the current purchasing procurement process at Dealz look like, and does Pepco support the company in this regard?
Okay. I will take that as well. We already had prepared Dealz to be virtually fully standalone in the run-up to the decision to separate ourselves from Dealz. Dealz has minimal ongoing relationships with Pepco going forward. There are a few small items that have been taken care of in a TSA with a limited duration, but for all practical purposes, Modella has been given a fully functioning, self-standing company, and they can hit the ground running.
Thank you. Another one from Jakob is, are further write-downs planned in connection with the sale of Dealz? If so, in what amounts?
Let me think. First of all, Dealz was an asset held for sale in our half-year accounts. We will now deconsolidate Dealz post the completion of the transaction, which is imminent. As a result, there will be a modest negative impact in the accounts of EUR 22 million, which will be reflected in our full-year accounts as an impact on discontinued operation. Clearly also will impact our net equity position at year end. It's a minor amount in the relationship of our total balance sheet and the performance of Pepco, which by far outweighs this EUR -20 million charge. I want to stress as well that the only ongoing support we will be providing to Dealz, as I explained in my speech, is a GBP 20 million working capital facility, which will be asset backed and therefore will be held at full value in our accounts.
Thank you. The first one from Jacob at NMPTE. What is the total exposure to Dealz and Poundland, including inventories, loans, et cetera?
I just answered the first one on Dealz. The ongoing exposure is limited to the GBP 20 million working capital facility, of which zero has been drawn. It will be asset-backed. In that sense, we have an asset-backed facility there. With Poundland, as again disclosed in the past, we have a working capital facility up to GBP 30 million, which runs until mid of August 2027. If and when there is news to report there, we will do that. At this point in time, we have been occasionally and time to time been providing support under the working capital facility, which Poundland has been paying back regularly as well. No major exposure there at this point in time.
Thank you. Next one is from Volodymyr at Kepler Cheuvreux. In your 5.4% like-for-like sales growth in Q3, what was the split between price mix and volume effect?
I understand the interest in this breakdown, we've never provided that, we also will not do that at this point in time. It's a healthy balance. It varies from quarter to quarter, reflecting competitive intensity pricing and other mechanisms that we use as a retailer to drive optimal sales through our network. It's a mix, as rightly commented. It's a mix between price, mix, and volume. The one thing I can say is that with regards to mix, we've had some positive mix upgrades in our portfolio as our efforts to upgrade our assortments have resonated with buyers. Still, it's a very healthy mix between volume, mix, and price.
It's probably important to state here, because Stephan, at the beginning, we have a very clear commitment to our everyday low price strategy. The one thing we can say is there is no ticket price increases really influencing our like for likes overall. As Willem alluded on, we see an interesting, not material, but slight development in AUPs up. That shows us clearly there is a trading down from middle class into our organization or value proposition with some higher priced products. Therefore, a very healthy mix to reconfirm of volume and of AUP.
Very good question, Volodymyr . I hope that we did answer it to you. Where we have price, it's mostly mix. We do not increase ticket prices, and that is very visible if you visit our stores in countries over a longer period of time. We are really committed to our value proposition to our customers.
Thank you. I think we might have another question from the conference call, I'll hand back over to George.
Thank you much, Tilly. Yes, we do have a follow-up question. It is coming from Michal Potyra of UBS. Please go ahead, Michal.
Hi. Thanks for taking my question. It's really on the buyback because once the buyback is completed, the company's equity position will become negative. I'm just wondering if you comment, are there any practical constraints this could create with respect to financing, debt covenants, or perhaps future capital returns to shareholders? Thank you
Michal, thank you very much for this question. I know it's bouncing in the background and thanks for making it transparent. Negative consolidated equity is all the result of the historical journey with Poundland. It doesn't say anything about the inherent and underlying strength of our Pepco proposition, which is extremely strong, but it's just an accounting reflection of historical goodwill that we had to write off as we exited both Poundland and Dealz. Our banking covenants do not have a reference to equity. They're all built on normal debt metrics, which where we are very solidly on the safe side of any of the metrics that one can look at. We have not been receiving any indication of concern by any of our banks on this accounting metric.
With regards to constraints on further distributions to shareholders, this is not a constraint as we have ample funding and equity at the top level of the company, which is the technical constraint in Dutch governance. Therefore, there is no issue, we're projecting equity to rise significantly on the back of both our Quarter Four performance and the guidance for next year, which we'll be providing in December. This is, for now, a temporary situation, but all our debt metrics are extremely strong. Also the rating agencies with whom we are happy in contact understand the true and underlying economics of our business model. I hope, Michal, that answers your question.
It does. Thank you.
Thank you very much, Michal. As we have no further questions, Mr. Borchert, I'll turn the call back over to you for any additional closing remarks. Thank you.
Yeah, make it short. Thank you very much for calling in. Thank you very much for your interest and your continued support. It's been a pleasure talking to you today on another very good and, for us, pleasant Q3 results. Looking forward to discuss with you full year results and guidance matters in December. For now, wish you a good day. Thank you very much