Good morning, everyone, and welcome to the Pepco Quarter One Trading Statement. I'm pleased to announce it's a strong quarter, and that's quite pleasing because this quarter is a very important quarter for us. It's our most important quarter, given it's the Christmas period as well. Whilst I'm pleased with the strong performance, I'm also very pleased that each and every one of the opcos has performed well and contributed strongly to the overall results. I'll pick a few of those out. If you look at Pepco's growth, its total growth was 40% year-on-year, and it's like-for-like was 20%. If we look at Dealz in Poland, that format, that was 70% growth year-on-year and also had a like-for-like of 19%.
If we look at Poundland's like-for-like, contributed well to the group at 4.1% like-for-like. As I said, I'm pleased with the quarter. I'm pleased that each and every opco has contributed to the quarter. I'm also very pleased that when we look at our Bigger and Better program, that has also performed well over this important quarter. Our New Look program, where we've refitted the Pepco stores in Warsaw and Wroclaw, those stores traded particularly well over the quarter one and Christmas period. If I look at what we've been doing in Spain by introducing Pepco Plus, they've also performed very well over this quarter and again, performed well with Christmas.
Finally, when we look at our Western markets, in particular Spain and Italy, you can really see them performing over the last quarter and again for Christmas as the maturity starts to really kick in. In summary on the trade, we spoke at the end of the year, we spoke about that we were planning for a big quarter run and a big Christmas, so we planned it. We planned it this way because we believed that many customers, this was going to be their first Christmas with their families, uninterrupted by COVID. The good news is, we believe we've delivered a big Christmas across all the formats. If I pick out Christmas specific products, like-for-like in Pepco on Christmas products, were 50% year-on-year. That's like-for-like, 50% like-for-like on those products.
We had an excellent sell-through. Very pleasing. We're also particularly pleased about our decision on stock. As I said, we planned for a big Christmas. We ordered stock to have a big Christmas, big quarter one, and we believe we've maximized the sales. Not only is that pleasing, but it also gives us a really strong base for quarter one next year. A few more points around our performance in quarter one and around our activities. While store openings, which as you know, are very important to us, we continue to track for the full year, and we've opened 105 net new openings in quarter one alone. We always look at our price position every quarter to see how we're performing. Are we maintaining or improving our price leadership?
We're very pleased to say that our Christmas ranges, we absolutely maintain our price leadership, and in many cases, improved on that price leadership. That's pleasing. Finally, and importantly, we've talked many times about our cost of doing business programs. What's pleasing in this big quarter, the Christmas quarter, they performed very well and helped us not only deliver good sales, but keep the costs in a very good position. Finally, on the back of all that, we remain on track to deliver our EBITDA forecast for this year. That's it from me, and I now hand over to questions.
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 Georgios Pilakoutas from Numis. Please go ahead.
Morning. Thanks, team. A couple of questions, please. First one, can you just talk a little bit about the phasing of store openings, for the full year, just given that one key run rate is slightly behind for the year? The second one, the new store refit program kicking off in earnest in January 2023. Can you just talk a little bit more around which markets perhaps you're looking at first, what sort of run rate you're targeting, and perhaps whether there's going to be any kind of trading disruption as those refits are completed?
Okay. Mat, do you want to start with the phasing on the store openings? I think it's
Yeah. Morning, Georgios. Look, good questions. I think from our perspective, absolutely committed to the 550 and you're right, touch behind. Two reasons for that. One is, as Trevor's described, we've been very focused on trading and optimizing the store estate, and so I think through this quarter in particular, that's been a big focus. Secondly, there has, through the kind of retail environment, been a little bit of disruption in terms of new space coming on, but we can see that coming through. I think Q2, Q3, and Q4 this year, we'll expect that run rate to tick up a little bit, probably more towards the H2 period. There'll be a heavier weighting this year than prior years. I don't know, Trevor, if you wanted to build on that any further.
Yeah. My two add-ons is at this stage of the year, we can see what contracts have been signed, so that's why we're confident that the 550 remains. We're confident in the 550. In truth, if you have a choice of any quarter where you would want to control your openings, it's actually Christmas, because a lot of customers don't like to change their normal shopping patterns just before Christmas. Actually, we've always found that the most productive time to open stores is quarter two, three, and four. Actually, sometimes the quarter one is less productive because, as I said, consumers don't like to traditionally in one store and flip their custom to another. Anyway, bottom line is we can see what's been signed up. We're absolutely confident with our new store opening program.
Going on to the other question, the second question in terms of New Look. If I start, and then maybe Mat can just add on. You're right to point out that our New Look program starts in absolute earnest in January. We're planning to refit around 250 stores in the second quarter two, so that's quite a phenomenal program. They are essentially focused on the markets of Poland, Czech, and Slovakia because they are our older formats and our smaller stores. All the work that New Look brings, we know that there's a big improvement in the overall look and feel for the consumers in the older stores and also in the smaller stores where we enter into the warehouses and make the stores bigger. There's a big consumer return. Our markets that we're focused on is Poznań, Czech, Slovakia, and 250 stores.
There will be a little bit of disruption, but what we've analyzed through our Warsaw and Wrocław is that you have a little bit of disruption for maybe 10 days, but then the following 10 days, once you've kind of relaunched, you more than make up for that 10 days disrupted sales. When we've refit stores, within about six weeks, we see no disruption in the sales whatsoever. That's what we've seen from the Wrocław and Warsaw refits. Mat, anything that you would want to add to that?
It just starts really with Poland as a focus, 250 stores a quarter. We'll probably come back and give a bit more of an update in April when we talk about H1 in terms of how we're progressing on the openings, which have recently started and is it in line with the trial that we've described to you previously.
Superb. That's very clear. Thank you.
Thank you, Georgios.
As a reminder, to ask a question, please press star one. We'll now take the next question from Janusz Pięta from mBank.
Hi. I have two questions. Do you see some changes when it comes to consumer buying patterns in, let's say, Poland, U.K., and other markets? Second one, how are sales dynamics evolving, let's say, in the periods after Christmas till today compared to, as you said, a strong Christmas period?
Okay. Yeah, thanks for those questions. If we start with the consumer behavior, if I start with Central Europe, the only change that we've seen in the consumer patterns is, you'll see that essentially in Central Europe, you get two sets of pay. You get private and public, and they're paid on different days. What you can see is the week before payday is a bit tight, and the week of payday it outperforms. We almost having a week where we kind of miss, and then we have a week where we recover. That has been traditional in the markets of Central Europe many, many years ago when money was tighter. You can feel that the Central European customer is conscious about payday.
As I said, the net effect is they're spending the same, they're just a bit more conscious of when they decide to spend that. In terms of the U.K., the only thing that we could really see is that Christmas food was maybe a bit earlier than normal, and Christmas GM and clothing was about the same time. There's nothing that really stood out in the U.K. markets that was different. That's how I would describe consumer. I think that, of course, they're looking at how much they want to spend and when they want to spend. I think what we can say at the moment is, in the end, they're spending roughly what they were spending last year.
In terms of post-Christmas, I don't want to get told off by Mat, but what we can see post-Christmas is, which is always you have to keep very close to consumers post-Christmas because they might want to celebrate at Christmas and then really tighten their belts. Without saying too much, so far so good with our trade across all formats since Christmas. Mat, is there anything you would like to add to that?
I think it's clearly, as Trevor's described something we are very focused on. That read on consumers post-Christmas, as we previously described, we knew from our customer research and from what others are saying that consumers were finding ways to have to enjoy Christmas and potentially looking to tighten their belts post-Christmas. It's something we're keeping very tight to. From a strategic standpoint, there's nothing we've seen so far that suggests that our view that we, both the segment of Value Retail and Pepco and Poundland, will benefit from the dynamic of consumers seeking value. There's nothing that we've seen so far that suggests otherwise to that. Yeah, it's early in the quarter in terms of Q2 post-Christmas, but as Trevor described, so far, so good.
Yeah. The only other build I would say to what myself and Mat have said is, in my 40 years of being in retail, if you deliver a good Christmas to customers, in that what do I mean by a good Christmas in terms of value, price, quality, availability, and range, then you normally get if you have a good Christmas, normally the consumers reward you after Christmas for that. We think we gave the customers a very good Christmas on price, on quality, on range and availability. I think there's good enough signs that say, we didn't let anyone down, so hopefully the consumer can carry on rewarding us for what we did over Christmas.
Thanks. All clear.
We will now take the next question from James Anstead from Barclays.
Morning, Trevor, Mat. Two quick questions. Firstly, on inflation, it's probably hard to generalize because I know it must be different across the range, but can you give a rough sense of what inflation you're seeing in your selling prices at Pepco? Where do you think we are in terms of inflation peaking? That would be one topic. Secondly, just a quick one. I appreciate you've only got a handful of stores in Germany, but I suppose we're all watching progress there very closely. I think you didn't comment on Germany, whereas you talked about Italy and Spain being very pleasing. Any kind of anecdotal update on Germany you can give us?
Thanks, James. James, you're slipping. You're normally the first one in with all your questions. You're slipping up a little bit. Mat.
We had inflation to deal with as well, so I'm struggling today. I'll be back to first next time.
Mat, why don't you just talk about the inflation in Pepco, and then I'll talk about the peaking.
Yeah. In terms of talking about the input inflation, there's a couple of dynamics here. In terms of that COGS input inflation, we've probably seen the peak of that now. The question is, how much does it normalize? What do I mean by that is, what were the drivers? They were principally containers, and they were principally commodity. We've seen a very meaningful shift in both of those over the past three to six months. They continue to fall today. It's clearly something that we are using to negotiate very hard with our suppliers to ensure that we are seeing the benefit of that on products that we are shipping to sell later in the year. That is something we'll seek to give a little bit more guidance in terms of the gross margin trajectory later in the year.
The early signs that we described in December, we're certainly beginning to see some traction on that. In terms of the other side of that, which is more visible in our COGS, which is about principally labor inflation, but also sort of goods not for resale, that's really now the big focus for the business. It's an area where we are seeing clearly some quite meaningful levels of inflation in the market. We are seeking to find the balance between settling in the right way to drive performance in our business but also negotiating in a tough way. I think, again, appreciate not giving specificity on the numbers.
It's something we'll talk about in a little more detail in H1. That really is where the business' focus is now is really on that SG&A line and how we seek to negotiate in the right way and being tough where we need to be, so that we can hold on to the benefits that we delivered on cost of doing business last year. The 1.6 percentage point improvement we delivered in FY 2022, the business absolutely wants to hold on to. We are, A, continuing to deliver on the strategic levers, and B, negotiating as toughly as we can on those lines. As I said, appreciate not giving you specific numbers there, but hopefully that just gives you a view on the dynamics.
Thank you, Mat. In terms of peaking, I'll try and answer it two ways. We monitor very closely the overall inflation in each of the countries that we operate because that will give us a sense of how customers will be feeling because they will see the numbers, they will feel the numbers. What we can see is that most of the countries' inflation appears to have peaked and sort of leveling off. Obviously, we're in quite a number of countries, so not all of them, but on the whole, I think most countries appear to have hit the peak and either leveling off or starting to drop. That will play into consumer sentiment. I would remind you in Central Europe, wage inflation's much higher in Central Europe. Also, some of the wage increases and the government's minimum wage increases.
That's all within our budget, so I'm not flagging any issues there. It's just that inflation's higher in Central Europe and so is the compensation. Inflation is lower in Western Europe, and the compensation's lower as well. I think in terms of countries, it appears to be peaking and leveling off, and I think that will give consumers a little bit of confidence. If we look at Pepco, what's inflating in terms of what we deal with, we can see, as we mentioned at the full year, we can see commodities, we can see containers, we can see a number of things starting to go in our favor. We do have to negotiate those, but they're going in our favor, which is very pleasing and very good. There's a couple of things that we've still got to work through, which is wage inflation.
We'll have to watch that, and energy, which again, seems to have peaked or may be coming down, but we'll have to watch that. I think, the Pepco inflation, at the moment, there's more good news than bad news. There was one other thing we still have to work through, but that's changing all the time, is FX. I think there's more optimism around the Pepco type of inflation than there was six months ago. It's still not completely leveled off yet. I'm glad you raised the Germany question, because I wouldn't want to leave anyone confused. What I would say is our Western markets that I didn't mention performed to our expectations. We're happy with all of the Western markets. The reason of bringing out Italy and Spain is they overperformed our expectation.
I think what we're, as I said again at the end of the year, I think what we're learning is it takes a bit more time in Western Europe to get the brand and get the brand awareness, and that happens through a number of stores as well as time. That's why we're particularly pleased when we look at Italy and Spain. We've been in there a year and three quarters, a year and a quarter, and they performed above our expectations for Christmas, so that's very pleasing. The other Western markets performed to our expectation, and we have high expectations. It is worth noting as well we did go into another market in quarter one, which is Greece, which is another Western market which has performed way beyond our expectations. That's incredibly pleasing for us. Thank you for asking that question.
Western Europe, overall, we're very pleased in Spain and Italy, and we're confident that the maturity curve is very strong for us. In the other markets, they performed within our high expectations, so we're pleased. Thank you, James.
That's very helpful. Thank you.
We will take the next question from Michał Potyra from UBS.
Good morning, everyone. A short follow-up question from me, please. If you could give us a little bit more color on your like-for-like sales. I'm just trying to understand how big was the traffic component, perhaps something about volume growth and how much price changes also impacted your like-for-like sales growth. Any color would be appreciated. Thank you.
Okay. Thanks, Michał. Mat, do you want to have a
I think perhaps just to kind of give context to answer this question, clearly this is against or in the context of last year was fairly significantly COVID-impacted. We faced a lot of restrictions on customers. By its nature, the percentages this quarter were always going to be high. I think we've been clear about that. Therefore, because of the fact that there were customer restrictions last year, there is a significant part of this where the dynamics are being defined by that. What I mean there is volume is the big driver, and actually, baskets are a touch smaller in general terms because what we were seeing previously, particularly during the periods where COVID restrictions were in place, was customer consolidating their visits and with bigger baskets. That has normalized quarter by quarter, and obviously now we're comping Christmas.
The big driver here is volume. Pure price inflation is not really the driver. We've been quite clear that that's not how we see our pricing. What we have seen is as we've introduced our sort of good, better, best product hierarchy and the strength of our category management, we are moving some customers up into the better and best, but particularly better products from good. One of the things that we are seeing is some driver on the average unit price, because we're kind of moving our customers into slightly more value accretive products, i.e., they have things in them that create greater value and obviously the sticker price is therefore a touch higher. To be clear, the big driver here is volume, and that is really as a consequence of the normalization of restrictions.
Clearly, what we are very focused on into Q2, Q3 is how do we begin to observe that behavior versus periods where there was less COVID disruption. That's something we've already described in terms of tracking consumer behavior and patterns is something we are very focused on. I think that's something that we'll come back to in terms of how we see that pattern evolving. Just to be clear, for this quarter in particular, it's very much defined by the sort of normalization from the COVID disruption prior year.
Yeah. If I was to sort of summarize
That's clear. Thank you.
Sorry, if I was to summarize that, I think there's three things going on here. There's clearly some recovery from the previous year where there was disruption from COVID and some supply chain e.g. stock. The good news is that we knew we recovered that well. There's clearly some momentum, it's not all about the recovery. There's real momentum in the numbers. It's very pleasing that we can also see that the projects that are small that become very big, like New Look and Pepco Plus are really, whilst they're small in terms of what they've delivered because they were just starting the projects, those numbers are again, certainly helping with our momentum and our confidence that that over time will grow. Thank you for that, Michał .
As there are no further questions, I'd like to hand the call back over to your host for any additional or closing remarks.
Thank you very much for joining the call. Thank you very much for the good questions. I always appreciate those to answer things that we might need clarifying or what's on your mind. Appreciate your time, have a good day. Thank you very much.
Thank you.