A strong quarter needs an inventory-clearance adjustment

Pepco said on 29 September that fourth-quarter revenue to 20 September rose 15.6% at constant currency. Like-for-like revenue excluding fast-moving consumer goods increased 9.5%, while the measure including FMCG rose 9.4%. It was the strongest quarterly like-for-like result since the strategy reset. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

The acceleration does not entirely represent durable demand. Planned clearance of older seasonal inventory contributed an estimated three to five percentage points to like-for-like growth and reduced quarterly gross margin by about 200 basis points year on year. Pepco expects fresher stock to support future sales, but to a lesser extent. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

For 51 weeks, like-for-like revenue rose 5.9% excluding FMCG and 3.8% including it. Pepco expects to finish the year with about 4,260 stores after roughly 250 net openings. Full-year preliminary results are scheduled for 9 December. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

The outlook rises and another €400 million goes to buybacks

Pepco expects full-year revenue above €4.5 billion, growth of about 8% at constant currency and gross margin near 51%. Underlying net earnings growth guidance rose to more than 60% against a restated €234 million base, from previous guidance above 50%. This is a pre-results forecast, not reported final profit. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026] [2 · Reuters · Pepco raises outlook and announces buyback, 29 September 2026]

Unlevered free cash flow is expected above €350 million, versus previous guidance of about €300 million. Capital expenditure is estimated near €150 million. This cash-flow measure is management-defined and should be reconciled with the full December accounts. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

The board approved a new share-buyback programme of up to €400 million for FY27–FY29, following €550 million of buybacks completed in the current year. The first tranche’s size and timing will be announced separately, so authorising the ceiling does not mean all shares are being purchased immediately. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026] [2 · Reuters · Pepco raises outlook and announces buyback, 29 September 2026]

Expert commentary

Quarterly growth looks powerful, but the company provides an unusually useful split between durable momentum and tactics. If clearance added three to five points to the 9.5% like-for-like gain, the rough underlying range is 4.5%–6.5%. This is not an exact recast because category and pricing effects interact, yet the adjustment materially changes the interpretation. A dependable baseline needs another quarter without a clearance programme of similar scale. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

Clearing old collections reduces future markdown and write-off risk and frees shelves for current products. The cost is temporary margin pressure and the possibility that customers learn to wait for discounts. The decision proves sound only if inventory turns stay high after clearance and full-price sales and gross profit recover. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

Regional figures show that the discount format does not scale evenly. Western Europe was especially strong, while growth in the largest Polish market improved more modestly. Competitors face pressure on prices and small formats, but durable advantage depends on sourcing, local assortment and store density, not opening speed alone. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

Underlying net earnings growth above 60% is not the same as accounting profit growth: the measure excludes selected items and uses a restated base. Fewer shares also lift earnings per share. Investors and industry observers should consider absolute profit, cash generation and return on invested capital together. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026] [2 · Reuters · Pepco raises outlook and announces buyback, 29 September 2026]

A buyback of up to €400 million competes for capital with shops, logistics and digital loyalty. It may be rational when cash flow is strong and shares undervalued, but it does not improve the customer experience by itself. Risk rises if expansion needs more capital or if post-clearance sales normalise faster than expected. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026] [2 · Reuters · Pepco raises outlook and announces buyback, 29 September 2026]

Before the December results, the key tests are gross margin after clearance, full-price sell-through, inventory, cash flow and new-store productivity. The positive scenario requires fresher ranges to retain traffic without permanent discounts. If like-for-like growth decelerates sharply, the quarterly surge will look more like demand brought forward than a new run rate. [1 · Pepco Group · FY26 pre-close trading update, 29 September 2026]

Sources

  1. Pepco Group · FY26 pre-close trading update, 29 September 2026 — Primary source: like-for-like sales, clearance effect, earnings and cash-flow outlook, store estate and share-buyback programme.
  2. Reuters · Pepco raises outlook and announces buyback, 29 September 2026 — Independent reporting on the revised outlook and new buyback programme; figures were checked against the primary source.