​European discount giant Pepco has issued a Q1 update — covering the period to the end of December — and said that total revenues reached €1.869bn with growth at constant exchange rates of 11% year on year.

That said, like-for-like (LFL) revenues declined 2.3% in Q1, but with an improving trend during the quarter.

Pepco LFL revenue dropped 3.7% against a tough comparative period a year ago when LFL sales were up by 20%.

Yet the UK’s Poundland LFL grew by 0.9%, with a strong peak Christmas performance driven by demand for FMCG, although it was offset by a weaker performance in clothing. Clearly, selling fashion was a tough task even at the very lowest price level.

Dealz LFL declined by 4.6% driven by planned lower stock availability in general merchandise (GM) categories ahead of a transition to Pepco-sourced GM.

That €1.86 billion revenue figure divided into €1.184 billion at Pepco, €596 million at Poundland and €89 million at Dealz.

A recovery in group gross margin was under way with a 200 basis point improvement year-on-year in Q1 FY24, driven by Pepco.

The retailer has been opening stores at a very fast rate, with its plans in the UK helped by the failure of the Wilko chain and a number of large, well-positioned branches becoming available all in one go. They wouldn’t have been available in normal circumstances.

But the company also faces challenges. Last year saw leadership changes as it battled external issues and the fact that fashion – in which it has been investing heavily – wasn’t so strong in the latest quarter is a problem.

It expects further gross margin improvements over the coming quarters, but challenges remain. In the report, the company said it’s noting “that the current situation in the Red Sea is leading to elevated spot freight rates and delays to container lead times. The majority of our freight costs are contracted until the end of Q3, but the business is facing additional surcharges from carriers in relation to the longer shipping routes being taken. While there is limited impact on product availability currently, a prolonged issue in the region could also impact supply in the coming months”.

CEO Andy Bond said: “The group delivered record revenue in its first quarter. Whilst the Pepco brand saw LFL revenues down across the quarter against a tough comparative period last year, it was encouraging to see the LFL trend improve over the three months in its core CEE markets. Poundland continued to perform robustly in Q1, boosted by strong sales of FMCG.

“I am pleased that we achieved a 200 basis point year-on-year improvement in gross margin during Q1, and this positive trajectory is expected to continue over FY24 – notwithstanding the potential impact of external factors beyond our control, such as industry-wide supply chain disruption.

“We are making good progress against our renewed strategy, as outlined in October last year, to improve profitability and cash generation in our core established business, while delivering more measured profitable growth. We are acting decisively at pace – we have initiated a more targeted store opening programme, paused the new look refit programme, and stopped activities that will not produce appropriate returns.

“Looking ahead, the group has a market-leading customer proposition, strict focus on returns, and proven profitable store model that makes the leadership team confident in delivering future success across our core European markets.”