Good morning and welcome to the Pepco Q 2 trading statement. Just for information, we have Mat Ankers with us on the call, he will join me with taking questions at the end. We also have Neil Galloway, who joined the group on April the 2nd.
Hi. Morning, all. Very good to meet you virtually. I'm very happy to have joined the company and looking forward to spending the next couple of months getting around the business and catching up with you after that. I'll pass it back to you, Trevor.
Okay. Just a reminder, this is a Q 2 trading statement, we'll talk about top line and store openings, but we'll also give you some information on profits and progress and the various initiatives when we get to the H1 results, which is taking place on the 6th of June. Q 2 trading overview. Very pleased with the trading. Delivered an encouraging result in the quarter against the backdrop of continuing inflation environment for both our customers as well as the business. We're continuing to focus on delivering on our strategy, which we often talk about, which is getting bigger, getting better, simpler, and cheaper. We've delivered strong double digit like-for-like revenue growth during this period, what's very pleasing that all parts of the business has contributed to the group's performance.
To highlight a few like-for-like numbers, you would've seen the group like-for-like up 11.1%, with Pepco with a very strong performance at 15.8% like-for-like, the Poundland group at + 4.9% like-for-like. In terms of overall group revenue growth, it was 23% in H1 , with Pepco reporting an impressive 30% year-on-year. Very credible result in challenging market conditions, I think this is a good point to thank all of our Pepco colleagues and Poundland colleagues and Dealz colleagues, as well as all the suppliers that support us. We remain absolutely committed to helping our customers on a budget by offering great range, great value, and great convenience. This is really important and more important than ever in terms of maintaining price leadership, which is enabling us to outperform the competition.
We've recently seen some market data from January 2022 to December 2022, and what's very pleasing, in all of our mature markets where we've got market share data, we've outperformed the market both on the sales basis as well as a volume basis. In addition to this, we continue to make encouraging progress on the group store refit and profitable store expansion strategy, which as a reminder, is our biggest source of value creation. Net new store openings were 166 in the H1 , which is less than last year, but we remain absolutely confident in meeting the target of a minimum of 550 store openings in the full year. Absolutely committed to that number. We'll fully update you on the various projects at the H1 results in early June. Just to give you a few headlines, the new look refit program in Pepco is on track.
We've just completed in Q 2, just under 200 stores to date. The results for the initial conversions are in line with expectations, which is very pleasing. Pepco Plus, which we've introduced into Spain, continues to highlight why we feel very strongly this is our blueprint going forward in our Western European markets. It's continuing to perform very strongly in both Spain and Ireland. A point to note is our expansion in Western Europe is progressing very well. Our mature markets of Italy or our maturing markets of Italy and Spain continue to be our fastest growing Western European territories, and we've delivered strong results over the past three years. We just recently opened our 100th store in Italy, marking an important landmark for the group.
The continued positive consumer response to our proposition in these markets demonstrates truly that the whole of Europe is really addressable to us, which we've commented on before. We're on track to launch Pepco brand in both Portugal next month, as well as Bosnia and Herzegovina in the H2 . In summary, we remain on track to meet our full year forecast, and this is while the consumer environment remains challenging. Our strategy of price leadership, which is absolutely key, gives us continued conviction in our ability to continue to win customers and to continue to win market share. I now hand over to questions- and- answers for myself and Mat from you guys. Thank you very much.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question from the queue, it's star two. Again, please press star one to ask a question over the phone. We will take the first question from James Anstead from Barclays. Please go ahead.
Yeah. Good morning, Trevor. Three quick questions, please. Firstly, what would you estimate like-for-like inflation is for the Pepco banner? I know it's hard to be precise, but a rough idea. Do you think it's s till going higher or is that starting to come down? Secondly, I think you've certainly hinted at weaker consumer sentiment in Central Europe. Is that something that's pretty consistent across the different markets or are some markets more impacted than others?
The third one would just be on Germany, where I think your first store must now be about a year old. Clearly that will be, if it pans out, one of the biggest markets for Pepco. I know you don't have a lot of stores there, so not a huge amount to say, but can you give any color at all on your happiness or otherwise with the progress in that market? Thank you.
Yeah. Thank you, James. Mat, do you want to start off answering question one around the like-for-like inflation in Pepco?
Of course, yeah. Thanks, James. Look, as we sort of described before, we are not in the sort of practice of like-for-like price inflation. It's a very small part of the overall mix. What we are doing is introducing different product sets along our product hierarchy that we've described previously, good, better, best, sort of manage that. I think at this stage it's a very small proportion of our like-for-like is sort of pure price on like-for-like products. The sort of what we described at the capital markets day in terms of around 4%-5% basket value growth being driven through product hierarchy changes remains the case.
We are continuing to introduce better products like the sort of higher value candles that we've described, which absolutely chime with what our customers are demanding to help support the sort of basket dynamics and basket economics in the business rather than passing on pure inflation.
Let me answer the wider sentiment. It's still fairly difficult to sort of really assess the sentiment in Central Europe. We have seen a weakening in some of the markets, some of the Central European markets, in recent months and we're not sure yet whether that's actually a rebound in terms of the disruption we had with COVID. Obviously by now we're kind of, we're fully open last year, so whilst everyone would say it's normal like-for-like, in truth, there was some pent-up demand last year as well as a lot of spend in terms of Ukraine. When we look at our like-for-like, it's hard to really work out what's driving a slightly weaker sort of numbers.
I think the second thing, and I've always hated sort of saying this word, but weather, it has been unseasonably cold in some of the Central European markets. At the moment, we can see a slightly weaker sentiment in Central Europe and we're still working through whether that's the disruption of the previous year on COVID and the supply chain or whether it's actually weather or a bit of both. What we're absolutely focused on, whatever is thrown at us in the inflationary or customer sentiment, whatever is thrown at us, our job is to make sure that we lead on price leadership and we set ourselves the target that whatever comes our way, that we win on market share and both the sales and volume basis. In terms of Germany, a quick summary, we've got five stores in Germany.
They are thereabouts slightly ahead of our expectations. The consumer response has been good, and we're becoming more and more confident. What you'll start to see over the next months and certainly into next year is that we're ready to now speed up our expansion in Germany. As I always say, we've decided to go into Germany very carefully and cautiously, learn from the consumer. We feel that we've got enough now that gives us confidence. You'll start to see quite an uptick in our growth plans at the latter part of this year and certainly next year in Germany. Hopefully that's answered your questions, James.
It has. One quick follow-up though on the second one. It's a very helpful color you gave, just interested to know between markets, I mean, making my question more specific on, Poland's a very big part of the Central European store base for you. Are you seeing a different consumer response there to what you're seeing in other markets or is the patterns of behavior relatively similar across those different countries you're based in?
Mat, do you want to give the sort of financial view and I'll give the consumer view?
James, look, the markets that we updated for, we're seeing a similar trend. Those larger CEE territories which include Poland but also Romania, Czech, we are seeing a similar trend. That is probably more noticeable in February and March than January, and that's sort of built around a combination of factors, which is we're seeing sentiment around intention for higher saving and intention about sort of seeking to manage their sort of month-to-month budgets more effectively. It is qualitative feedback that we're looking across those markets that we're then linking through to some of the harder quantitative data that we have around sort of market performance and our share. It is a similar trend.
As Trevor's already described, some of that is about kind of government policy unwind, some of the changes in regards to energy subsidies coming into the new year. Some of it is about, we flagged in Q1 about customers were finding ways to have a good Christmas, but then were probably intending to manage their finances into the new year, as is not untypically the case. We're seeing a number of different sort of qualitative and quantitative data points. I think to emphasize, it is generally similar in those larger territories that we're tracking.
I think my only build why it makes this slightly difficult, James, is that as Mat said, it's really February, March that we're seeing some changes. In those months, we're seeing some weeks where we're trading as an expectation, and that tends to be when the weather was kind of the seasonal norm. We're seeing our GM trade in okay, pretty well. It's sort of mainly around the clothing and that's what sort of leads us to believe it's not yet consumers not wanting to spend. It's more the unseasonal weather means that people aren't buying the clothing, which is set up for spring and summer now.
Our stores are set up for spring and summer. Only two weeks ago it was snowing in Warsaw. I think in truth, James, I think we still need a bit more time to really see whether it's the disruptions to supply chain and COVID and the rebound that's affecting, or whether it's customer sentiment or it's weather, or it's a mixture of all three. I think it's too early for us to say at the moment, in all honesty.
Without overdoing it, James, the sort of punchline here is that we are winning share on both sales value and volume. Whatever we are seeing out in the market, we are very focused, A, on delivery and B, on the thesis that discounters, which we are one, win in these periods. It further underlines the strategy that we've been coursing now for 18 months, and I think Trevor's described very well repeatedly that we are absolutely focused on price and absolutely focused on the best possible price and not just passing on inflation. I think we're absolutely confident puts us in the best position to continue to outperform in the market.
That's really helpful. Thank you.
As a reminder, to ask a question, please press star one. We'll now take the next question from Georgios Pilakoutas from Numis. Please go ahead.
Hi. Morning, team. There's quite extreme inflation going on in Eastern Europe. I guess, just wondering how you're thinking about that in the context of OpEx inflation in the H2 , how that weighs up against some of the gross margin tailwinds that you're seeing, and if you could kind of help break that down at all. The second question was just on Italy in particular. I guess we're kind of starting to reach a point we've got decent cohorts of stores there, and so if there was just anything you need to flag in terms of the maturity curve of stores or kind of the margins that you're reaching.
Yeah. Okay. Mat, do you want to start with the inflation and I'll finish with it?
Sure.
We'll.
This will be colored, George, rather than specific numbers because we'll come back in a little bit more detail in June on this. How you've characterized it is exactly right in that, the big challenge and headwind over the past 18 months or 12 to 18 months has been principally around gross margin price pressures, e.g., product margin. What we're now seeing is a fairly material easing of that as container and commodity price pressures ease. However, as you describe, the battleground now become around OpEx inflation. We described some of that previously. That is both about rent, where we are having to be very focused and pretty aggressive around negotiation on rent. It's around labor, particularly with wage rises in CE ticking up. We've been clear previously the Polish market will see two minimum wage rises this year.
Energy, which whilst we're not an intensive energy consumer, clearly we do use it. We recognize the pressure. That being said, if we think about what we delivered in FY 2022, our cheaper pillar has been a significant focus for this business and what we are seeking to do is to, in a similar way with gross margin, how do we mitigate the rate inflation that we're seeing across those lines? As an example, our end-to-end that we've talked about previously, we are now up to almost two FTE reduction on average in our stores in that program, and this is seeking to offset the labor rate rises that we're seeing. Yes, absolutely recognize there are greater levels of inflationary pressure now around OpEx, we have a very clear set of strategies and activities which we have a high degree of confidence around to seek to mitigate some of that.
I think if I just add a CEO perspective to it. This time last year we had really just headwinds. With the headwinds of commodities, we had the headwinds of containers, we had the headwinds of inflation, headwinds of how was the consumer going to respond. Everything was all headwinds, if I was honest. We're now at a stage where we've got a couple of fundamental tailwinds going in our favor that we'll start to see in the H2 come through, it's very much in next year, which is containers and commodities. Yes, we've got a couple of tailwinds. One that we can see, which is inflation, and the other one which is consumer sentiment, which we've described. We can't see yet, but we can feel there's a change, but we can't see whether that's temporary or more permanent.
I think at least this time, at this stage this year, we've got a couple of tailwinds and a couple of headwinds. I think anyone that's trying to analyze businesses at the moment, what I would say, because we feel it all the time, is that the final end results of COVID-19 haven't finished yet. This year, we've still got the impacts of last year into the H1. The same with the supply chain, which was pretty impacted all the way through the summer of last year. Inflation started a year ago and still sticky there. I don't think we're on a complete purist comparison period. I think we've got another six months to run at least before we see that COVID won't be talked about, the supply chain won't be talked about, and containers and commodities won't be talked about.
It will just be where we are on with inflation and where we are with consumer sentiment. As a CEO, I feel like we've got, at least for the first time for a long time after COVID, commodities, and inflation, we've got some tailwinds supporting the business as much as still some headwinds that we've got to grapple through. We've grappled through some pretty severe headwinds over the past three years and come out pretty strong. Italy, Mat, anything you want to say on Italy?
I suppose just from a numeric perspective, we recently crossed our 100th store, as we called out, and that, before handing over to Trevor to give a little bit of color, the reason that we're pressing ahead in such an aggressive way there is because we are seeing many positive signs. As we've described before, the maturity curve in Western Europe does appear to be a little different. We are typically seeing stronger second year LFL than we would typically see in CEE, and I suppose that is giving us confidence in the continued momentum, continued performance of those stores. Trevor, if you want to add your-
Yeah. I can't really add much. We know from the consumer what they're telling us, that there's no difference in what they like and dislike to our other countries. We know that the consumer is responding to our price and our offer, and we know that Italy is getting stronger and stronger, and we believe there's still some maturity to come out of Italy, and we are pushing on as hard as we can in Italy, and that's how confident we are. Italy is going to be a major country for us, as is Spain, as is Germany, as is Portugal.
We're very confident, we're very pleased with Italy, and I think when we come to the H1 when we can talk sales and profit, we'll give you a much deeper dive on both Italy and Spain, our two most mature markets. It would be fair to say that we're very pleased and very confident about our performance today and what we can see will be our performance in the future.
We'll now take a question from [Tomas], who's an independent. Please go ahead.
Morning, team. I would understand a little bit better the impact of inflation and as this is always the free like-for-like driver, could you share with us what's the change in average selling price versus last year?
We don't report our ASP. As I described, the reason for that is that what we've sought to do in the past is describe strategically what we're seeking to do, which is introduce differentiated ranges to support basket economics, we're not going to be describing specifically what sort of ASP ATV growth is today.
Yeah. May I only build to that is, no one should look at the GM and clothing business in the same way as food. I think there is no doubt inflation is supporting from what I can see. I come from a food background. There is no doubt inflation is supporting the like-for-like numbers you see in the food industry. It is not the same in the GM and clothing. We have not passed on the inflation in the same way, which is why you can see the margins in 2022 dropping, but we made it up through the cost of doing business. Where you say that the inflation supportive, it is not supporting the same way as the food industry.
I think when you're in a GM and clothing, and going through all the impacts we're going through, the most important thing is we make sure that consumers have still got GM and clothing on their wanted list, especially when times get tough. We haven't passed on all of the inflation. We've passed on a bit, but not much, and the rest we've made up by getting bigger as a business and more economies of scale and getting cheaper as a business, which you can clearly see in what we did in terms of the full year 2022 figures.
We have a question from Mikhail from UBS. Please go ahead, your line is open.
Hi, good morning. Thank you very much. I have a question maybe not around the trading update, but on the refreshed brand for Dealz. I've seen the new logo, and I'm wondering, I understand you will be introducing that gradually, but I'm wondering if there are any other changes to the business model for the Dealz instead of a new logo. Are you considering a whole refurbishment of Dealz stores as well? Thank you.
Yeah, good question. Anyone that's not living and working in Poland, probably, we haven't really described yet what our plans are for Dealz. It's one of the things that we want to talk about in H2 , about what we are testing and trialing in our Dealz business in Poland. Number one, we've worked on two things. We got three phases. Phase I was we wanted to work on a simpler layout for the store for the consumer, as well as a cheaper CapEx solution. We've introduced some of the things that we've been doing over the years with Pepco into the store. Actually now we've got Pepco buy-in, using the scale of Pepco to buy all the fixtures and fittings. The look and feel and design is, or certainly the fixtures and fittings is all purchased by Pepco.
We've got a cheaper, phase I is a cheaper CapEx and a new look layout for the consumer. Phase II is what you're now seeing, is we're testing, and we're very confident we've tested what we call in phase II, a new brand, a new look and feel in the store. There's a new look and feel in store, new brand, new point of sale treatment that adds to the phase III, sorry, phase II. In phase III, we will be introduced, Pepco will actually be buying the GM, but it won't be Pepco GM. It'll be using its supplier base and its knowledge and its how to create ranges.
Phase III, which will be about another year, will be having the FMCG as you see it in those new look stores, but also a much better curated GM range, which will be done by Pepco. That's the very headlines, and I promise to talk much more in detail because there's a lot more going on in Dealz than I've just described. We'll give you a much fuller update in the half year profit statement.
As there are no further questions, I would like to hand back to Trevor for any closing remarks.
Okay. Thank you everybody for joining us on the call. Hopefully you share our sentiment, which they are very good results, certainly in this continued volatile environment. Very pleasing that our colleagues and our suppliers have supported us. Again, thank you very much for joining us and thank you very much for the questions. Look forward to seeing you in H1 . Thank you very much.
Thank you