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LPP S.A. Press room LPP’s financial results for Q3 2020/21 – a slow return to stability

LPP’s financial results for Q3 2020/21 – a slow return to stability

21.12.2020

• The Group’s revenue in Q3 of the 2020/21 financial year grew by almost 5% YoY to over PLN 2.4 bn. The drop in sales for 9 months of this year by 11.4% was lower than expected.

• The increase in online sales, in the period from August to October, offset the falls in traditional sales. Revenues from e-commerce in Q3 constituted 18% of the Group’s revenues. The PLN 2 bn proceeds from this channel planned for the end of the year has been maintained.

• The stabilisation of sales and the positive effects of efforts aimed at strengthening the omnichannel model led the company to unfreeze its investment plans and to return to the stock up for the next season at the 2019 level.

• The importance of exports in the revenues of the Polish clothing manufacturer is growing. In Q3, foreign sales of LPP already accounted for over 56% of the revenue.

The Q3 brought about an improvement in LPP’s financial results of LPP in comparison with the previous months. Thanks to the restoration of traditional trade and the actions taken by the company to support omnichannel sales, the Gdańsk-based company generated over PLN 2.4 bn in revenue, which means an increase of 5% YoY. At that time, the net profit was slightly higher than last year’s and amounted to almost PLN 247 m. The weaker results of traditional sales in Q3 of this year, compared to the comparable period last year, were offset by growth in the e-commerce channel.

The continued interest of customers in online shopping, despite the restoration of traditional trade, is reflected in the 86% YoY dynamics of online sales. In Q3, sales from this channel generated revenues of nearly PLN 446 m for LPP. Thus, online sales accounted for 18.2% of the Group’s revenue and 19.6% from Poland, which accounted for approximately 47% of the total revenue in this channel. Cumulatively, in the period from February to October, the company reached over PLN 5.7 bn of total sales, which is a decrease of 11.4% YoY.

– Given the continuing uncertainty and uneven recovery of traditional trade in different countries, we are satisfied with the stabilisation of the Q3 sales results. The 5% increase in revenue is a good signal and proof that we have found a way to deal with the new reality. The assumption adopted since the beginning of the pandemic that 2020 will be the year of survival and maintenance of the company’s stable situation has mobilised us to introduce changes and strengthen the omnichannel sales model, which is bearing fruit today – comments Przemysław Lutkiewicz, – Vice-President of the Management Board, LPP.

The stabilisation of the sales results of the Gdańsk-based company after nine months was also influenced by the triple-digit e-commerce dynamics of 110%. However, this would not have been possible without actions taken during the crisis and optimisation of many areas of the company’s operations, which allowed it to survive difficult months – We are still observing how the pandemic affects customer behaviour. There’s a persisting trend of larger drops in traffic in stationary stores in large cities, and smaller ones in smaller towns. With this in mind, we see the potential of the omnichannel model and the growing importance of e-commerce in it – says Przemysław Lutkiewicz. – The persistently high number of visits in online stores, as well as new and returning customers allows us to look at the previously set target of PLN 2 bn from e-commerce at the end of the year with real optimism – he adds.

Despite the continuing difficult situation in all markets, Q3 of 2020/2021 was another one for LPP with the foreign revenues exceeding the domestic ones. In the period from August to October, they accounted for just over 56% of total revenues. The 14% YoY increase in sales in Europe was influenced by the good results recorded in the Baltic States, the Balkans and Romania. In turn, the subsequent restoration of the operation of shopping centres in Russia, Ukraine and Kazakhstan and the re-entry into Belarus with the Group’s own chain of stores, resulted in a 6% YoY increase in the Group’s sales in this region.

For the 10th consecutive quarter, trade liabilities constituted a source of inventory financing. These are still at a lower level YoY despite the 33% drop in traditional sales in comparable stores between February and October. In the third quarter, their level was lower by 12% YoY and by 22% per m2. This is a result of a shift in deliveries of goods, reduced orders for the autumn/winter season and high sales results in online stores. An important role in effective stock management this year was also played by the Defrost project, which in the period of the first lockdown allowed for the release of goods from the stores for the purpose of the e-commerce channel.

– Thanks to the lessons learned in the first lockdown and preparations for the second wave of the epidemic, we survived this most unpredictable time. We expected the worst, but at the same time we have learnt a lot in the field of goods management, use of technology and optimisation of logistics. As a result, we’re planning to return to the pre-pandemic level. The key IT projects and the securing of the financial cushion have also allowed us to return to long-term plans and investments in development and logistics, which we hope will ensure security of our operations under various market scenarios – comments Przemysław Lutkiewicz. – It is equally important that, despite the survival-oriented months, we have not changed the commitments in the area of sustainable development of LPP and we intend to continue our plans in this regard – he adds.

The company plans to allocate a total of PLN 760 m for this year’s investments. This will be primarily a selective development of the sales network, especially of younger brands in the eastern markets, where the company still sees development potential for traditional stores. The company also plans to continue investments in offices and IT projects. The last months of this year also saw the slow defrosting of projects supporting logistics. In this respect, the construction of a new Distribution Centre in Brześć Kujawski will be of crucial importance for the company. The new facility, planned to be launched inQ1 2022, will strengthen the existing operational capacities of the supply and distribution network of the Gdańsk-based company. The company is also returning to its plans to enter a new market and open stores of all brands in Northern Macedonia in 2021.

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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 in traditional stores 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 1800 stores with the total area of over 1.3 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.