First quarter of this year at LPP marked by intensive development of Sinsay brand and significant sales growth despite the withdrawal from the Russian market
•In Q1 2022/23, revenues of the Polish clothing producer increased by over 67% YoY, exceeding PLN 3bn (data excluding operations in Russia).
•High revenues of LPP Group in Q1 2022/23 resulted from the growing popularity of Sinsay brand in both channels.
•The past quarter, despite the suspension of online sales in Ukraine and Russia, brought LPP nearly PLN 1bn in e-commerce revenue and continued steady growth of online sales.
•The company once again achieved higher revenues from abroad, which in Q1 2022/23 already accounted for 57% of the Group’s revenue.
•After a temporary suspension of sales operations in Ukraine, LPP is back to business in that country – resuming e-commerce deliveries and stationary sales operations to a limited extent.
The first quarter of the current fiscal year at LPP (February-April) was strongly affected by the war going on across the eastern border. For security reasons, the company temporarily suspended its operations in Ukraine, and at the end of April, after previously halting its stationary and online sales in Russia, it took a directional decision to sell its entire business in this country. Consequently, as at the end of April this year, the company had 1760 physical stores in 25 markets, and the online offer was available in 32 countries. The war in Ukraine and the related unfavourable USD exchange rate, as well as discounts on LPP goods originally destined for eastern markets, also affected the gross margin, which fell to 53.3%. Despite this difficult situation, the company performed well financially. A flexible approach and agile operations in the area of the company’s development strategy ensured a net profit of PLN 268m already in the first quarter. At the same time, revenue from sales exceeded PLN 3 bn, which means an increase in the Group’s revenue by over 67% YoY[1].
– We consider maintaining high sales dynamics in the first quarter of the year, given such difficult conditions, as a good sign for the near future. As the financial figures indicate, even leaving Russia – such an important market for LPP – does not pose a threat to the company’s development. Despite the lack of sales operations in this country and the still limited operations in war-torn Ukraine, the Group’s total revenues increased by 29% YoY, and after excluding data from the Russian market in both quarters compared, we can speak of a 67% increase. This shows that shifting the focus of our activities towards Southern and Western Europe is the right decision. Customers have reacted enthusiastically to the collections of our brands, which can be seen in the almost twofold increase in revenues from European markets – comments Przemysław Lutkiewicz, Vice-President of the LPP Management Board.
The record-breaking turnover growth in Europe, at 98% YoY, allowed the Gdańsk-based company to compensate for the loss caused by the closure of stores in Russia. As a result, total revenues from abroad again exceeded those generated in Poland and accounted for 52% of the Group’s total revenues. Good sales, especially in countries such as Romania, the Czech Republic and Germany, and on the domestic market, which recorded a 60% increase YoY, are the effect of Sinsay’s dynamic development. The company set its sights on strengthening the brand position both within the physical stores network in Poland and abroad, as well as in e-commerce.
– In the first quarter of the year, total revenues of our youngest brand, Sinsay, which was higher abroad than in Poland, increased by almost 63% YoY, and accounted for almost 40% of the Group’s revenues. On the one hand, this is the result of intensive omnichannel expansion of the brand in Poland, but also abroad. On the other hand, it is a positive effect of the natural increase in the popularity of value-for-money segment offers in the current economic situation. At the same time, we observe consumers’ growing interest in more expensive premium collections of Reserved brand. A recovery in demand for formal clothing among women is also noticeable, as evidenced by the nearly 48% YoY increase in sales at Mohito. All that indicates a gradual return by customers to their old, “pre-pandemic” shopping habits – explains Przemysław Lutkiewicz, Vice President of the Management Board of LPP.
The practically complete lifting of sanitary restrictions in the past quarter encouraged customers to return to shopping in the physical stores chain. Despite these changes, the company maintained a stable growth rate in the online channel YoY, recording revenue of almost PLN 1bn. The majority, 72%, of purchases were made via mobile devices. The highest increase in e-commerce sales, by almost a quarter, was seen in the European market, due to the launch of Sinsay online stores in Greece, Spain and Italy in April. This allowed the company to offset a significant YoY decline in online sales in eastern markets, associated with the closure of stores in Russia and the temporary suspension of trade operations in Ukraine. However, in response to an appeal by the Ukrainian authorities, the company has resumed business operations in that country.
– Following the recommendations of the Ukrainian authorities, in their efforts to maintain the smooth functioning of the economy, where possible, in April we restored the operation of our e-store in selected areas of the country. Orders are carried out to a limited extent, with delivery only to strictly defined collection points and on the basis of prepaid transactions. Also in the first quarter, we restored the operation of some of our physical stores and resumed supplying them. This applies mainly to western Ukraine and areas affected by warfare to a limited extent. This is our response to requests for support in maintaining at least a semblance of the former reality in Ukraine – points out Przemysław Lutkiewicz, Vice-President of the Management Board at LPP.
While resuming business operations in Ukraine, LPP continues its activities supporting its employees and citizens from the war-stricken country. As part of the ongoing assistance, the company prepared financial and in-kind support worth a total of PLN 20m, which is allocated for such things as accommodation or legal aid, but also to support the aid activities of the LPP Foundation’s external partners.
For the Polish clothing company, the last quarter was also a time of logistics development. In February this year, the Distribution Centre in Brześć Kujawski became operational; together with the Distribution Centre in Pruszcz Gdański, it constitutes a key pillar of the LPP logistics network. The warehouse with the area of 75th m2 provides services up to 1000 stores simultaneously, employing over 700 people. In the first quarter, the construction works at the Fulfilment Centre in Podkarpacie also gained momentum. The new e-commerce warehouse, which is scheduled to be launched in the fourth quarter of this year, is to support the service of neighbouring markets such as: Hungary, the Czech Republic, Germany, Slovakia, Ukraine, and partly also Poland.
As part of its sustainable development strategy, the company also continued to work on the preparation of its decarbonisation strategy. With this in mind, last year it self-calculated its carbon footprint in all three scopes in line with the GHG Protocol guidelines. This was the first step before the company joined the global Science Based Targets initiative. Thanks to this move, LPP, as the first Polish company representing the clothing industry, will submit the developed decarbonisation goals to scientific verification this year. Professional scientific assessment of the strategy in line with SBTi methodology is to help the Polish company achieve climate neutrality by 2050.
[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. Based on a global distribution network located in 3 countries, it 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.