Adds details on Dealz sale in paragraphs 4 and 5, Western Europe results in paragraphs 6, 7, rewrites throughout

July 9 (Reuters) - European discount retailer Pepco Group PCOP.WA raised its full-year guidance on Thursday after reporting stronger underlying trading in the third quarter, driven by a strong performance in Western Europe.

Third-quarter like-for-like sales rose 5.4%, excluding Dealz and fast-moving consumer goods following the disposal of the Polish business.

The retailer now expects a gross margin of around 51% and mid-teens underlying EBITDA growth for the full year 2026.

The update is the first since Pepco agreed in June to sell its Dealz Poland business to Modella Capital for a nominal price, completing its exit from fast-moving consumer goods and a strategic reset that saw it sell the struggling Poundland chain in 2025.

Pepco will receive 35% of the net cash proceeds from any future sale of Dealz by Modella under the agreement.

The third quarter's like-for-like growth was driven by a 15% jump in Western Europe.

Pepco said in May it would accelerate its expansion in Western Europe, aiming to double its presence there by 2030 to capitalize on demand from value-seeking shoppers.

($1 = 0.8750 euros)