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LPP S.A. Press room Summary of LPP’s financial results for 2020/21

Summary of LPP’s financial results for 2020/21

29.04.2021

• Revenues of the Polish clothing manufacturer in the 2020/21 financial year amounted to PLN 7.8 billion and were lower YoY by almost 15%.

• This is the first year in LPP’s history in which sales abroad were higher than domestic ones in every quarter. In 2020/21, the value of exports accounted for over 56% of the Group’s total revenues.

• The Gdańsk-based company fulfilled the annual plan of PLN 2 billion proceeds from e-commerce, which means that in the past financial year revenues from this channel already accounted for over 28% of all total revenues.

• The lower than expected drop in revenues and the positive effects of activities strengthening the omnichannel sales model allowed the company to return to its investment plans.

The past surely unprecedented year was marked by the impact of the pandemic on the market and many challenges, especially in the clothing industry. However, thanks to a flexible approach in the face of the new reality, strengthened operations in the e-commerce channel, improvements in logistics and following customer expectations actively, LPP ended the 2020/21 financial year with a better result than originally expected. The company’s revenue for the last quarter amounted to over PLN 2 billion, while total revenues reached over PLN 7.8 billion, meaning a fall by 15% YoY. For the first time in its history, the Group recorded a net loss at the level of PLN 190 million.

– Last year gave us a solid survival lesson. Thanks to a financial cushion and the implementation of projects responding to the market situation, we managed to get through the toughest period in our history. In the first half of the year, not knowing what the next day would bring, we entered a crisis mode by introducing strict cost discipline in order to maintain the company’s liquidity. That time showed us that when faced with a new reality we have to be ready for different scenarios. Observing the sales results in May, June and July, we decided to unlock investment outlays in the subsequent months and implement projects that are key to the future of the company. In that regard, from the second half of the year on we focused on development in the area of logistics and e-commerce to cope with the dynamic growth in e-commerce – comments Przemysław Lutkiewicz, Vice-President of the Management Board, LPP.

The past year was a period of intensive growth in e-commerce for the Gdansk-based company. Online sales in the whole of 2020/21 accounted for as much as over 28% of the Group’s revenues. The highest proceeds from this channel amounting to almost PLN 780 million were recorded in the last quarter of the year, when online sales accounted for a record 37.2% of the Group’s revenues.

– Unfortunately, the 99% increase in e-commerce in the last quarter of the year did not offset the 23% drop in overall sales caused by temporary lockdowns in various regions – explains Przemysław Lutkiewicz.– However, we are observing sustained interest of customers in online shopping. This is visible in the double-digit dynamics of the number of visits to our brands’ websites and the triple-digit increases in the number of new and returning customers. In addition, the share of mobile devices in online shopping continues to grow. The period from November to January was yet another quarter in which more than 80% of visits were made with mobile devices, of which over 60% ended with a purchase. This is good news for us, because these statistics already correspond to global levels – adds the Vice-President of LPP.

Organisational changes supporting omnichannel sales and an inventory management policy adjusted to this model resulted in trade liabilities being the source of inventory financing for LPP for the second time in a row. The company pursued a rational inventory management policy throughout the year. This was the effect of quick adaptation of the offer to customers’ needs, limiting orders for the autumn-winter season and effective sale of collections. The Defrost project also played a significant role as it allowed for a gradual release of goods from the stores for the purpose of servicing online sales. Thus, despite market uncertainty, the company ended the year without excessive stocks.

At the end of 2020/21, the LPP offer was available on 38 markets. During that period, for the first time in the company’s history, foreign sales accounted for a greater share in each quarter, with their share in the revenue of the entire Group already amounting to over 56%.

– Last year, all our brands generated more revenue from abroad than in Poland. Also in the last quarter, for the first time Poland’s hare in the Group’s revenues fell below 40%. In the regions where we are developing our logistics network, we favourable sales results were recorded, an example of which is the Q4 revenue in Romania. Sustained interest in our offer was also visible in Serbia or Bosnia and Herzegovina. At that time, we also recorded a doubling of sales in the pan-European store says the Vice-President of the Management Board, LPP. – The important thing is that despite the decreasing share of Poland in the Group’s revenues, we observe a relation between our financial results and temporary lockdowns in Poland. In a situation where we experience periodic closures of brick and mortar stores abroad, but domestic stores remain open, we are able to make up for the foreign loss and fulfil our sales plans. However, when the situation is reversed and we have to close the stores here in Poland, it is much more difficult for us to achieve these goals. This proves that Poland is still the driving force behind our sales, and brick and mortar stores play an important role in the company’s revenues – he adds.

LPP maintained its liquidity, that is why investments in the last quarter were higher and amounted to almost PLN 300 million. At that time, the planned construction of the Distribution Centre in Brześć Kujawski was commenced and the development of the retail network continued with a floorspace increase by almost 17% y/y last year. The first stage of development of the Fashion Lab complex was also finalised, doubling the office space in Gdańsk. The company also decided to expand its e-commerce warehouse space in Russia and Romania. – Despite ending last year with a net loss of PLN 190 million, we believe that we are prepared for the still uncertain market situation. We forecast that 2021/22 will bring us further growth in online sales. We are hoping to exceed PLN 2.8 billion in revenue in this channel. In addition, we expect that after the end of the pandemic the market will see the so-called deferred demand phenomenon. This is clearly visible each time lockdowns are lifted, when customers are eager to return to brick and mortar stores. We therefore assume an optimistic market scenario of a return to normality, although understood in a different way than before – says Przemysław Lutkiewicz. – In the new retail reality, efficient logistics processes and digitalisation are of key importance, which is why, as part of strengthening omnichannel sales, we will develop retail space and invest in these areas. We will invariably focus on adapting our offer to the current needs of the customers. The budget allocated for development activities in 2021/22 is PLN 1.1 billion – he adds.

In 2021, as part of the planned development of the sales network, LPP will enter a new market, namely North Macedonia, with the offer of all five brands. Selective growth of retail space in Eastern markets is also planned. Given the growing potential for growth in the affordable fashion segment and the fact that the stationary network is an important part of the omnichannel strategy – the company will continue to develop the offline offer of younger brands in smaller towns. Continued construction of the Distribution Centre in Brześć Kujawski and implementation of the second phase of RFID technology implementation in younger brands are also planned. Bearing in mind the growing trend of shopping via mobile devices, an Internet application for the flagship Reserved brand will be launched in the near future. Additionally, a further extension of the Fashion Lab office complex in Gdansk is planned for 2021.

Despite a year focused on survival, LPP invariably continued its plans for sustainable development. Implementing the For People For Our Planet strategy for 2020-2025, the company reduced plastic consumption by another 300 tonnes, and the share of the Eco Aware collection in the entire offer has already increased to 18.6%. As part of its responsible manufacturing efforts, the company started consultations with factories in Southeast Asia to meet the set Eco Aware Production standards. The company also joined the international ZDHC initiative for chemical safety in production and the Polish Plastics Pact. Moreover, an inseparable element of LPP’s activities in the past year were charity projects, for which the company together with the LPP Foundation donated over PLN 9 million. – We are proud that despite the prevailing uncertainty we were experiencing, we were able to consistently fulfil our commitments in terms of responsible and sustainable fashion and we had the energy and enthusiasm to help others in the fight against the pandemic – says the Vice-President of the Management Board, LPP. – Caring for the environment is inherent in our DNA, so regardless of the challenges – we will develop in a sustainable way. This fact has been, is and will be an integral part of our business – he adds.

More information on the activities undertaken by LPP may be found in the Company’s integrated report for 2020/21 financial year, available at https://www.lppsa.com/zrownowazony-rozwoj/raport-roczny.

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LPP is a Polish family business and one of the fastest growing clothing companies in the region of Central and Eastern Europe. For 30 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 1.4 million sq.m. The online offer of the brands collections is available on 30 markets. On the basis of a global supply chain, the Polish clothing producer distributes over 259 million pieces of clothing to three continents. LPP plays another important role as it employs nearly 22 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.