Discount Retail Chain Pepco Group, owner of European discount retailer brands PEPCO, Poundland and Dealz, said a cost-of-living crisis in the United Kingdom has seen consumers scaling back even on essential items.
The Warsaw-listed group, which recently appointed a new CEO, said that while the absolute levels of inflationary pressure were greater in Central and Eastern European markets, higher wages in those regions were substantially offsetting this in the short term.
In Western European markets, however, the acute spike in inflation in a stagnant wage growth environment had quickly resulted in absolute lower spending by consumers.
"Specifically in the UK, the cost-of-living crisis has impacted customers’ disposable income as they scale back even on essential purchases in the short term," Pepco said.
The group said a focus on reducing the costs of doing business meant it was able to offset some of its input inflation.
This was "allowing us to protect prices for all of our cost-conscious customers whilst also absorbing some of the input inflation ourselves".
Earlier this week, U.S. retailer Target cut its quarterly margin outlook and said it would have to make deep discounts to clear inventory, as decades-high inflation weighs on demand.
PEPCO said the war in Ukraine, a country which borders three of its largest operating territories, continued to create volatility, albeit with some trading upside driven by the influx of people to core PEPCO markets. The conflict was also exacerbating existing supply chain disruption and inflationary headwinds.
Pepco reported a 7.3% rise in first-half core earnings, driven by new store openings.
It made underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of €347 million (US$ 371 million) for the six months ended March 31, in line with the company's guidance.
Revenue rose 18.9% to €2.37 billion (US$ 2.64 billion) as the company opened a net 192 stores, taking the total to 3,696 across 17 countries. Like-for-like sales rose 5.3%.
Pepco said its same store performance in its third quarter so far was above pre-COVID-19 trading levels and it remained on track to meet its full-year guidance in the absence of any further significant deterioration in the macro environment.