Poundland owner Pepco continued to negotiate the squeeze on consumer incomes this week by posting strong sales and profit growth despite macroeconomic pressures.

Reporting its annual results on Wednesday, the European discount retailer posted a 17.4% jump in total revenues to €4.8bn for the year to 30 September at constant currency.

Headline growth was boosted by the opening of 516 net new stores (excluding closure of 59 Fultons stores in the UK), including 446 new Pepco stores and net 70 new Poundland stores, albeit these were almost entirely in the Dealz Poland business.

Poundland revenues were up 7.8% year on year to €2.1bn, with like-for-like revenues up 2.6% compared with 3.1% in the previous period. Gross margins in the Poundland business held up despite soaring inflation as the brand’s bottom line benefited from a “close focus on stock” and lower write-offs versus a Covid-affected 2021.

Notably, Poundland’s widening offer and price architecture enabled it to sell 58% of products outside its £1 price point, which was up 19 percentage points year on year.

Therefore, Poundland’s underlying EBITDA grew 9.8% to €214m, while group-wide, underlying EBITDA of €731m was up 14.3% on a constant currency basis. The group result was boosted by higher sales from the store rollout programme alongside the positive organic performance, itself boosted by store refits and improvements in customer proposition.

Following this “encouraging” performance, Pepco Group pledged to further accelerate its store expansion programme, with an upgraded target to open at least 550 net new stores in 2023, to close the year with at least 4,500 stores.

Pepco warned macroeconomic conditions continued to be “challenging”. However, it noted signs of inflation rates peaking, while the price of cotton, oil and freight all remained below recent peaks. It maintained guidance for 2023 of delivering EBITDA growth in the mid-teens, with revenue growth in the mid to high teens.

Tash Tesseyman, retail analyst at GlobalData, said the results were “commendable” given high inflation and geopolitical events. “As a value merchandiser, the group should be confident about its future performance despite market conditions, as consumers will trade down to its brands,” she said.

However, share argued the group needed to leverage its online operation and take “full advantage” of its acquisition of Poundshop.com in the UK in February 2022. “Neglecting its online performance may be unwise, given that value retailers and discounters such as Home Bargains and B&M are continuing to improve their online offers.”

Pepco shares in Poland remained little changed this week, but have bounced back on positive sales performance from annual lows of PLN28.32 in October to PLN39.16 by close on Wednesday.

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