Pepco Group said on Thursday it has raised its outlook for full-year profitability and cash generation after a quarter of strong trading in Western Europe and the agreement to sell its Dealz Poland food retail business. The company cited improved margin dynamics and the expected proceeds and financing arrangements tied to the disposal as drivers behind the upgraded guidance.
The group now anticipates a full-year gross margin of around 51%, up from its earlier projection of at least 49.4%. It also boosted its underlying EBITDA growth target to the mid-teens, measured against a restated base of 841 million, compared with a prior forecast in the low-teens. Guidance for unlevered free cash flow was increased to around 300 million from a previous target of more than 250 million.
Chief executive Stephan Borchert said the results reflected "continued execution against our New Pepco strategy, the strength of the Pepco brand and the consistency we are building across the business."
For the three months to 30 June 2026, group revenue excluding Dealz rose to 1.09 billion. On a like-for-like basis and excluding food products, sales increased by 5.4% for the quarter. Western Europe was the standout region, delivering 15.0% like-for-like growth excluding food. Both CEE South and CEE North recorded like-for-like growth excluding food of 3.6%, despite strong prior-year comparatives. On a two-year basis, third-quarter like-for-like revenue growth excluding food was 10.2%.
Margin improvement for the nine months to June was notable: gross margin rose by 290 basis points year on year to 51.9%. The company attributed the improvement to sourcing efficiencies and foreign exchange tailwinds. During the quarter Pepco opened 74 net new stores, taking the total store count to 4,151, and said it remained on course to open around 250 net new stores in the full year.
On 3 June, Pepco agreed to sell Dealz Poland, comprising 100% of the share capital of Dealz Poland sp. z o.o., to Modella Capital, described by the company as a specialist European retail investor, for a nominal consideration of PLN 1. Antitrust approval has been received and completion is expected imminently.
Under the terms announced, on closing Pepco will provide an 18-month asset-backed vendor financing facility of up to 20 million sterling equivalent. The group will also retain a 35% share of net cash proceeds from any future onward sale of Dealz through an Exit Participation Agreement that carries no time limit.
Pepco said the disposal marks the completion of its exit from fast-moving consumer goods retail following the sale of Poundland in June 2025. Once closed, Dealz will be reclassified as discontinued operations and fully deconsolidated from the group's FY26 year-end financial statements.
Borchert added the group looked "forward with confidence to delivering further profitable growth and enhanced returns for shareholders."
The company also confirmed a tender buyback of up to 400 million remains on track to complete during FY26. This follows an earlier 200 million share buyback programme that was completed ahead of schedule, with the final 52.9 million tranche settled on 15 May.
Financially, the quarter combined operational improvements with capital actions linked to the Dealz disposal and share buybacks. Management highlighted sourcing and currency effects as contributors to margin expansion, while regional performance was uneven, with Western Europe clearly outperforming other markets in the period reported.