Pepco turns to train, air freight to mitigate Red Sea disruption

European discount retailer Pepco Group is using train and air freight options to mitigate ongoing Red Sea shipping disruption to ensure it has enough stock for the festive trading season.

Attacks by Iran-aligned Houthi militants in Yemen have disrupted Red Sea shipping using the Suez Canal, forcing vessels to take the longer route around Africa and adding weeks to transit times.

The Warsaw-listed owner of the Pepco, Poundland and Dealz brands warned in July about delays to summer stock landing on store shelves in its third quarter.

It said on Thursday the issue had continued to affect “the consistent and timely availability” of stock and contributed to a year-on-year fall in fourth quarter like-for-like revenue.

“Mitigating actions, which include shipping product earlier, optimising shipping routes and selectively utilising faster carrier options, are expected to improve availability during the first half of FY25,” it said. Pepco’s 2024/25 year starts at the end of September.

A spokesperson said it was shipping some products up to a month early to ensure supplies for the Christmas period and also using train and air freight options.

Train and air freight is generally more costly than sea freight.

The group said total revenue for its fiscal year to date, the 51 weeks to Sept. 22, was up 10%, driven by new store openings, but its like-for-like revenue was down 3.1%. It did not provide a figure for the fourth quarter.

The group said trading in Poundland and Dealz had largely followed the trends of previous updates, with performance affected by the transition to Pepco sourced clothing and general merchandise.

The group forecast 2023/24 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of “at least” 900 million euros ($1 billion), an increase of 20%.

It previously forecast underlying EBITDA of “around” 900 million euros.

That reflected full-year revenue in excess of 6 billion euros and improvements in gross margin.

Shares in the group were up 5.6%, paring 2024 losses to 22.2%.

“While there is much more to do, particularly around like-for-like sales progress, we remain committed to expanding our price leadership position, enhancing the core customer proposition and improving our supply chain capabilities,” Executive Chair Andy Bond said.
Source: Reuters (Reporting by James Davey; editing by Mark Potter and Jason Neely)