By James Davey

LONDON (Reuters) – European discounter Pepco Group said on Thursday it was evaluating all strategic options to separate its struggling 825-store Poundland business in Britain this year, including a potential sale.

In a statement ahead of its Capital Markets Day, the Warsaw-listed group, which also owns the Pepco and Dealz brands, said although Poundland had turnover of over 2 billion euros ($2.16 billion) last year, it was operating in an “increasingly challenging” UK retail landscape “that is only intensifying”.

It said higher employer taxes announced in the Labour government’s October budget will add further pressure to Poundland’s cost base.

Pepco said in December it was considering options for the Poundland chain after it booked a 775 million euro impairment charge, plunging the group to an annual net loss of 662 million euros.

The group said it would focus on the Pepco brand “as the single future format and engine driver of group earnings”. It will also consider the separation of the well-performing Dealz Poland business over the medium term.

Pepco, whose shares are down 6% year-on-year, said it was making a strategic move away from fast-moving consumer goods to focus on Pepco’s higher-margin clothing and general merchandise business and “white space” opportunities in Central, Eastern and Western Europe.

Group CEO Stephan Borchert will assume responsibility for running Pepco, while Barry Williams has been appointed as the permanent managing director of Poundland.

Pepco Group’s like-for-like sales were up 1.5% in the eight weeks to March 2, with growth at Pepco and Dealz offset by negative like-for-like sales at Poundland.

The group forecast profitable growth in its 2024/25 year, though Poundland’s EBITDA would dip to 50 to 70 million euros from 153 million euros in 2023/24.

It said the board has authorised a share buyback capability of up to 200 million euros.

($1 = 0.9258 euros)

(Reporting by James Davey; Editing by Kim Coghill and Jan Harvey)