Pepco Group N.V. (PCO) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Pepco's quarter-1 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. So 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. So I'll pick a few of those out. So if you look at Pepco. Pepco's growth, its total growth was 40% year-on-year, and its 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%. And if we look at Poundland's like-for-like contributed well to the group at 4.1% like-for-like. So as I said, I'm pleased with the quarter. I'm pleased that each and every OpCo has contributed to the quarter, but 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 1 and Christmas period. And 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. And then 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. So in summary, on the trade, we planned -- we spoke at the end of the year. We spoke about that we were planning for a big quarter 1 and the big Christmas, so we planned it this way because we believe that many customers this was going to be the first Christmas with their families uninterrupted by COVID. And 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, and we had an excellent sell-through. So very pleasing. We're also particularly pleased about our position on stock. As I said, we planned for big Christmas. We were able to stock to have for Christmas big quarter 1, and we believe we've maximized the sales. And not only is that pleasing, but it also gives us a really strong base for quarter 1 next year. So a few more points around performance in quarter 1 and our activities. While store openings, which are, as you know, are very important to us that we continue to track for the full year and we've opened 105 net new openings in quarter 1 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 maintained our price leadership and in many cases, improved on that price leadership. So that's the reason. And then finally and importantly, we've talked many times about our cost of doing business programs. And what's pleased in this big quarter, the Christmas quarter, they performed very well and helped us not only to deliver good sales, but keep the costs in a very good position. So finally, on the back of all that, we remain on track to deliver our EBITDA forecast for this year. That's it for me, and I'll now hand over to questions.

[Operator Instructions] We will take the first question from George Pilakoutas from Numis.

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 1Q run rate is slightly behind back for the year? And then the second one, the New Look store re-fit program kicking off in earnest in Jan '23. 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...

Yes. So I think it's a good question. I think from our perspective, absolutely committed to the 550 New Look a touch behind and 2 reasons to that. One is as Trevor has 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. And secondly, it has through the kind of retail environment being a little bit of a disruption in terms of new space coming on, but we can see that coming through. So 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, but I don't know Trevor, if you wanted to build on that any further.

Yes, my 2 add-ons is at this stage of the year, we can see what contracts have been signed. So that's why we're confident the 550 remains -- we're confident in the 550. If you have a choice of any quarter that 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. So actually, we've always found that the most productive time to open stores is quarter 2, 3 and 4. And actually sometimes the quarter 1 is less productive, because as I said, consumers don't like to sort of shop it traditionally in one store and flip, they're accustomed to another. So anyway, bottom line is we can see what's been signed up. We're absolutely confident with our new store opening program. So going on to the other question, the second question in terms of New Look. So if I start, and then maybe Mat can just add on. So 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, quarter 2. So that's quite a phenomenal program. And they are essentially focused on the markets of Poland, Czech and Slovakia, because they are older formats and our smaller stores and 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. So the markets that we're focused on is Poland, Czech and Slovakia and 250 stores. There will be a little bit of disruption for what we've analyzed through our Warsaw and Wroclaw is that you have a little bit of disruption for maybe 10 days, within the following 10 days once you've kind of relaunched, you're more than make up for that 10 days in the disrupted sales. So when we've refit stores within about 6 weeks, we see no disruption in the sales whatsoever. That's what we're seeing from the Wroclaw and Warsaw refits. Mat, anything that you would want to add to that?

Yes. Look, yes, it just starts really with Poland as a focus, 250 stores a quarter, we'll probably come back and get 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.

[Operator Instructions] We'll now take the next question from Janusz Pieta from mBank.

I have 2 questions. Do you see some changes when it comes to consumer buying patterns in, let's say, Poland, U.K. and other markets? And second one, how are sales dynamics evolving, let's say, in the period after Christmas till today compared to, as you said, a strong Christmas period?

Okay. Yes. Thanks for those questions. So if we start with the consumer behavior, if I start with Central Europe, the only change that we're seeing in the consumer patterns is, you'll see the -- essentially in Central Europe, you get 2 sets of pay. You get private and public. And they're paid on different days. And what you can see is the week before payday is a bit tight, and the week of payday is outperformed. So we have almost a week where we kind of miss and then we have a week where we will recover. And that has been traditional in the markets essentially many, many years ago when money was tighter. So you can feel that the Central European customer is conscious about payday. But as I said, the net effect is that 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 can 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. market that was different. So that's how I'll describe consumer. I think, of course, they're looking at how much they want to spend and when they want to spend. But 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, 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. But without saying too much, so far so good with our trade of course since Christmas. Mat, is there anything you would like to add to that?

I think clearly, as Trevor's described something we are very focused on. And that read on the 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. So it's something we're keeping very tight too. But 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 on Pepco and Poundland will benefit from that. The dynamic of consumers seeking value, and there's nothing that we've seen so far that's suggested wise to that. So it's fairly early in the quarter in terms of Q2 post Christmas, but as Trevor described, so far so good.

Yes. The only other build I would say to what myself and Mat said is in my 40 years I've been 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 than you normally get. If you have a good Christmas, normally, the consumers reward you after Christmas for that. And we think we gave the customers a very good Christmas on price, on quality and range, and availability. So I'm not saying that the -- so I think there's good enough signs to say we didn't let anyone down. So hopefully, the consumer will carry on rewarding us for what we did over Christmas.

We will now take the next question from James Anstead from Barclays.