Europe-based value retailer Pepco Group said on Thursday its struggling Poundland business in the UK saw an even worse performance in the Christmas quarter, with underlying revenue down 7.3%.

The company, which also operates the Pepco and Dealz chains in Europe, said group like-for-like revenue fell 1.1% in the final three months of the calendar year, which is its first fiscal quarter. Admittedly, that was better than the 3.5% drop in the previous quarter.

The fall came despite like-for-like revenue rising 1.4% at Pepco itself and an impressive 6.6% at Dealz. Poundland was down 7.3% on that basis.

So why was Poundland so weak? Unfortunately, the problems were cause by ongoing issues in the clothing and general merchandise segment, as well as the challenging market conditions that caused problems for many UK retailers.

Pepco has already said it’s considering strategic options for the 825-store chain but we won’t hear more about that until March.

So let’s look at some of Pepco’s numbers in more detail. Q1 group revenues were €1.9 billion with constant currency revenue growth of 3% versus last year.

On the plus side, group gross margin improved by over 140 basis points year-on-year in Q1 with continued strong progress in Pepco, offsetting significantly lower margins in Poundland.

The group also celebrated its 5,000th store milestone with net new openings of 63 stores across the business in Q1, largely representing openings of Pepco in its core CEE region.

As for the outlook, the company added that “we continue to see a divergence of performance across our brands. We are pleased with the momentum we are seeing in our Pepco and Dealz businesses.

“We remain confident that Pepco will deliver profitable growth during the year, driven by further operational improvements and enhancement of the core customer proposition, supported by a continuing strong gross margin position. 
 
It added: “This compares with challenging trading conditions for Poundland, as previously described, amid a more difficult sales environment and consumer backdrop in the UK, alongside margin pressure and an increasingly higher operating cost environment.

“We expect that the toughest comparative quarter for Poundland is now behind us – the same quarter last year represented a period prior to the changes made within our clothing and GM ranges – and therefore, we expect the negative sales performance for Poundland to moderate as we move through the year.”