Poundland takes £640 million hit on Budget costs and sales woes

Poundland’s owner has slumped to an annual loss after taking a 775 million euro (£640 million) hit on the discount chain, blaming soaring costs from recent Budget moves and falling sales.

Pepco swung to a pre-tax loss of 554 million euros (£457 million) for the year to September 30, against profits of 159 million euros (£131 million) a year ago after booking the write-down on Poundland, citing a “significant decline in performance in 2023-24 and weaker outlook for profitability amid increasing competitive and cost challenges”.

The group said it was facing a “higher cost outlook in the UK following the recent Budget”, with Chancellor Rachel Reeves having announced a hike to employers’ national insurance contributions and a further increase in the minimum wage from next April, which is set to send employee costs surging.

But trading has also come under intense pressure at Poundland, with like-for-like sales dropping 3.6% over the year due to a poor performance in clothing and general merchandise as the group switched to Pepco-sourced ranges.

Sales since the year end have remained lower, with an “underperformance of all categories”, according to the group.

Stephan Borchert, recently-appointed chief executive of Pepco, said: “At Poundland, recent performance has been very challenging, impacted by declines in clothing and general merchandise following the transition to Pepco-sourced product ranges at the start of the year.

“We are taking swift action to get Poundland performance back on track, focusing on a return to Poundland’s strengths.”

The group said it made the move to shift to Pepco-sourced ranges to help drive scale, increase cost savings and lower prices for customers.

But it admitted: “It became clear as the year progressed that both the planning and execution of this implementation had shortcomings, with gaps in clothing and general merchandise product for the UK customer, impacting revenues and profitability during the year.

“It further became clear that our UK customers had a different expectation of the Poundland brand proposition compared with Pepco customers which has led to a fundamental rethink of approach going forward.”

Annual results showed underlying earnings at Poundland slumped 63% to 28 million euros (£23 million), but the group’s Pepco brand fared better with earnings up 47%, while its Dealz arm swung back to a profit.