The second quarter of this year meant intense development of LPP in European markets
• In the second quarter of the 2022/23 financial year the revenues of the Polish clothing manufacturer increased by over 45% YoY[1], exceeding 4.3 PLNbn.
• The past quarter brought the Gdańsk-based company more than PLN 1.2bn in e-commerce revenues and a high online sales growth rate of 54% YoY.
• Dynamic expansion of the Sinsay brand – sales growth of 63% YoY, further development of retail space and excellent results on new e-commerce markets: in Greece, Spain, and Italy.
• Consistent growth in European markets brought LPP another quarter in a row of higher revenues from abroad, which accounted for 57% of Group revenues in Q2 2022/23.
• Western Europe a source of future growth for LPP: plans for 2023 include the debut of Reserved in the fashion capital – Milan – and expansion of the brand in London – opening stores in three shopping malls.
In the second quarter of this financial year, LPP performed well financially despite the changes related to the war going on across the eastern border. Even after the company’s withdrawal from the Russian market and in view of the security-restricted operation of the business in Ukraine, where 96 of LPP’s 159 brand stores are currently operational, sales revenue in the period from May to July exceeded PLN 4.3bn.
Despite the lower gross margin, which reached 52% in the second quarter, the company generated a net profit of over PLN 514m for the first half of this year. The good results are the effect of consistent realisation of the goals that the Polish manufacturer had set out in its new strategy for development in foreign markets and at the same time confirm the rightness of the decisions taken in this area. The company maintains its growth targets of annual revenues of more than PLN 16bn in the 2022/2023 financial year and PLN 5bn in e-commerce.
– As the financial figures for the past quarter show, compared to the period a year ago, when we were still operating in Russia, the Group’s total revenues increased by 19%t YoY. However, if we exclude the Russian market completely in both periods, we can speak of an increase of up to 45% In such difficult market conditions, this is a very good result and confirms the positive reception of our collections in the other countries. In all markets, customers were keen to shop both in-store and online. Despite rising inflationary pressures, we are not seeing a slowdown in customer shopping trends at the moment. To a large extent, this is the result of interest in the autumn wardrobe change and the back-to-school offer – explains Przemysław Lutkiewicz, vice-president of the management board, LPP.
The hit collections also brought the company an increase in e-commerce turnover by as much as 54% and revenue from this channel of over PLN 1.2bn. The majority, 70%, of purchases were made via mobile devices. The company’s offer was available online in 32 countries. The highest growth in online sales, almost 90%, was recorded in the European market, and was driven by the dynamic development of Sinsay. The youngest brand in the LPP portfolio, thanks to intensive omnichannel development, performed very well in the second quarter and recorded growth of 63% YoY. As a result of online expansion abroad, in new e-commerce markets alone – in Greece, Spain and Italy – the brand achieved revenues of approximately PLN 23m, which is similar to the total performance of the Reserved pan-European e-store. Sinsay’s total revenues exceeded PLN 1.6bn, of which around 40% originated from the online channel. Expanding its network of traditional stores, the brand gained more than 50 new locations and increased its retail floorspace by more than 15% compared to the first quarter of this year.
– We treat the growth of the Sinsay brand as a positive effect of the natural increase in the popularity of value-for-money offerings in the current economic climate. At the same time, although we are not yet experiencing a reduction in spending on clothing among customers in the sale of our brands, given the market conditions, we are reckoning that we will have to deal with the effects of inflation in the coming months. The weakening purchasing power of consumers, the rising dollar exchange rate, which means for us to purchase goods for future seasons at higher prices, and the inflationary increase in other costs, including transport, are already forcing us to raise prices. There are many indications that this trend will continue in the long term – comments Przemysław Lutkiewicz, vice-president of the management board, LPP.
The cost increase observed by the company is, on the one hand, a result of the development of the traditional network. On the other hand, however, it is also the result of intensifying inflationary pressure visible in every area of the company’s operations. Rising energy prices, which are an element of operating costs, are also not insignificant. In this context, the decision already taken last year to diversify the energy portfolio and use renewable energy to power the company’s facilities proved to be strategic. The ten-year contract with Figene Energia, signed in 2021, safeguards the company against the growing financial risks in the energy area. According to the contract, the supply of green energy from wind farms to the offices, the Distribution Centre in Pruszcz Gdański and selected LPP stores in Poland is expected to commence in January 2023.
Despite the difficult international situation and the market conditions in all countries affected, the second quarter of 2022/23 turned out to be another quarter for LPP in which revenues from abroad were higher than from Poland. In the period from May to July, they accounted for as much as 57% of total revenues. Consequently, the company had 1756 traditional stores in 25 markets, and the online offer was available in 38 countries. The best results were achieved in European markets, where, in addition to Poland, Romania (PLN 349m), the Czech Republic (PLN 284m) and Germany (PLN 200m) were the sales leaders. Europe also showed the highest turnover dynamics at 61% YoY.
– The high dynamics in the EU countries confirms that the change in strategy we made in the first quarter and our focus on developing the company in Southern and Western Europe was the right decision. The results achieved in the second quarter are a good forecast for the future and allow us to take an optimistic view of LPP’s presence in these regions. Preparations for the opening of Sinsay stores in new markets await us soon – in December 2022 in Italy and in the first quarter of the next financial year in Greece. Our plans for next year also include the debut of Reserved in the fashion capital, Milan, as well as the expansion of our flagship brand in London, where we want to open three new stores – concludes Przemysław Lutkiewicz.
With such ambitious development plans for the sales network, logistics support is crucial. Therefore, in the second quarter, the Group’s management board decided to start operations by an entity separated from the company’s structure – LPP Logistics. The new logistics operator is responsible for the management of all logistics facilities in the Group’s supply and distribution network, whose total area is currently close to 400,000 sq.m., and for further improvement of logistics operations in the supply chain. At the moment, the brands from the LPP Group are the key customers of LPP Logistics, but the company does not rule out using its logistics and warehousing potential for external entities in the future.
During the period under review, LPP also continued to implement further objectives of its sustainability strategy announced in 2019. The company has completed the work carried out in recent months to prepare a decarbonisation strategy, which will be submitted for review to SBT – a global organisation that supports private companies in the transition to a zero-carbon economy. At the same time, in line with the idea of development consistent with the principles of a circular economy, the company has begun a partnership with Use Waste. The contract with the Polish start-up will lead to the development of an innovative technology to produce yarn from textile waste, fulfilling the idea of circular fashion based on the textile-to-textile concept. To this end, LPP has decided to allocate the amount of PLN 1m by the end of next year.
[1]Percentage data obtained after excluding revenues from the Russian market in both comparable quarters.
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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 collections in such prestigious capitals as London, Helsinki or Tel Aviv. LPP SA manages five fashion brands: Reserved, Cropp, House, Mohito, and Sinsay, whose offer is available today in stationary and online stores in nearly 40 markets worldwide. The company has a chain of over 1700 stores with the total area of 1.4 million m2 and distributes clothing and accessories to 3 continents every year. LPP also plays an 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.