A slow pick-up in LPP’s sales results – the Polish clothing manufacturer sums up Q2 2020/21

• LPP’s revenues in Q2 of the 2020/21 fiscal year were lower than in the comparable period last year by 9% and amounted to PLN 2.1 bn. Group revenues for the entire H1 amounted to PLN 3.3 bn, which indicates a fall YoY by 20.6%.

• The continued triple-digit increases in e-commerce sales have not balanced the overall falls in revenues. The 30% share of the online channel in the Group revenues did, however, render it possible to maintain a stable financial situation of the company. The PLN 2 bn proceeds from online sales planned for the end of the year has been maintained.

• The Q2 was marked by negative LFLs due to uneven lifting of trade restrictions in particular countries and the changes in consumer purchasing habits.

• Yet another quarter in a row, the foreign sales results of the Polish producer were higher than the domestic revenues.

The Q2 of the shifted fiscal year brought about an improvement in financial results of LPP in comparison with the previous months. In the period from May to July, the company generated PLN 2.1 bn revenues and operating profit of PLN 32.3 m. The pick-up in revenues in that period was due to lifting the economic lockdown restrictions and record e-commerce turnover, which translated into PLN 3.3 bn of total revenues in H1. Despite the continuing double-digit drops in LFLs, the results of comparable sales in the subsequent months of the previous quarter also improved. Three-digit dynamics in the online channel, which reached 125% YoY, provided LPP with revenues exceeding PLN 621 m. Thus, online sales in Q2 accounted for 29.2% of the Group’s turnover and 30.9% from Poland, which accounted for approximately 48% of the total online revenues.

The growing popularity of shopping in e-stores, and thus more effective use of promotions by customers, resulted in a slight decrease in the gross margin YoY, which remained, however, at the expected level of 47.6%. The better financial result also allowed the company to replenish its cash resources, therefore the company plans to increase investment outlays still this year, focusing on the expansion of retail floorspace, logistics and office facilities and IT projects.

– The recently visible upward trend in revenues is a positive signal for us. Although this does not yet mean a return to the levels recorded before the pandemic. The single-digit drop in quarterly sales YoY and the slowing down of LFL decreases, with the continuation of the three-digit dynamics in the online channel, allow us to have a positive outlook for the future. After many months of great uncertainty, the currently stable situation of the company has also given us the opportunity to unfreeze our investment plans. Due to the ongoing pandemic, the market situation is, of course, still unstable and we need to be prepared for different scenarios. However, the actions taken during the crisis and the optimisation of many areas of the company’s operations, combined with the financial cushion, give us a sense of security – comments Przemysław Lutkiewicz, Vice-President of the Management Board, LPP.

The increase in savings in the Polish clothing company was also possible thanks to a significant reduction in the costs of own stores – by as much as 26% YoY. The process of renegotiation of retail floorspace rental contracts played a major role here. As a result of the talks with shopping mall owners, the company managed to increase the share of turnover-based rents and reduce the lease costs per m2, which gives grounds for increasing profitability of the locations covered by negotiations in the following years.

The rebound of sales after the re-opening of shopping malls, combined with the reduction of seasonal orders and a sound promotional policy in all brands also had a positive effect on the company’s financial standing, allowing to avoid premature sell-offs of collections. This, in turn, reduced the level of inventories by 16% compared to last year. The company is also continuing its policy of financing inventory from trade liabilities, aiming to level these values and release additional cash, as it did in the previous quarter.

Despite the continuing difficult situation in all markets, Q2 of 2020/21 turned out to be another one for LPP withe foreign revenues exceeding the domestic ones. In the period from May to July, they accounted for nearly 55% of total revenues. The visible difference in revenues from individual regions where the company sells its collections is to a large extent a result of different approach of particular countries to closing and re-opening shopping malls. – In the Baltic States, including Lithuania, only moderate restrictions were introduced. We have seen a much more restrictive approach in the Middle East and CIS countries, where the ‘freezing’ of trade in stationary stores lasted the longest – comments Przemysław Lutkiewicz.

Although the COVID-19 pandemic continues to affect the company’s activities, it consistently implements successive assumptions of the Sustainable Development Strategy. The second quarter was marked by preparations for LPP to join the Zero Discharge of Hazardous Chemicals initiative. The aim of the agreement between companies and research and academic centres is to eliminate hazardous substances in the clothing and textile industry by setting and implementing new standards. By obtaining the status of “Friend of ZDHC”, the Gdańsk-based company has also committed itself to take action in respect of suppliers, encouraging them to eliminate harmful substances completely in the factories. In addition, the company supports its partners in optimizing the management of chemical agents in order to reduce their consumption, which is to increase the safety of employees who are directly responsible for the production process.

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LPP SA is a Polish family business and one of the fastest growing clothing companies in the region of Central and Eastern Europe. For over 25 years it has been successfully operating in Poland and abroad, offering its collection already on 25 markets, including in such prestigious capitals as London, Berlin, Tel Aviv or Moscow. LPP SA manages five fashion brands: Reserved, Cropp, House, Mohito, and Sinsay. The company has a chain of over 1700 stores with the total area of over 1 million sq.m. The online offer of the brands collections is available on 29 markets. On the basis of a global supply chain, the Polish clothing producer distributes over 265 million pieces of clothing to three continents. LPP plays another important role as it employs over 24 thousand people in its offices and sales structures in Poland, Europe, Asia, and Africa. The company is listed on the Warsaw Stock Exchange in the WIG20 index and belongs to the prestigious MSCI Poland index.