LPP SA (LPPSY) Q2 2026 Earnings Call Transcript

2025-09-25 16:57:40 ET

LPP SA (LPPSY) Q2 2026 Earnings Call September 25, 2025 12:00 PM EDT

Company Participants

Magdalena Kopaczewska - IR Director

Presentation

Magdalena Kopaczewska
IR Director ...

Welcome, everybody. My name is Magda Kopaczewska, and I represent Investor Relations unit in LPP. Marcin Bojko, CFO and Board member of LPP is here with me [Audio Gap] So all in all, we are satisfied that the dynamics was positive, particularly in the reserved brand. These were 2-digit like-for-likes. In terms of e-com sales, we generated PLN 1.4 billion in the second quarter [Audio Gap] of growth in current -- constant currency, of course, we were planning 22%. But in this channel, again, this difficult market show its face [Audio Gap] with lower traffic in the net, we decided to optimize the performance marketing costs. So the purchases of likes or clicks in the net. So maybe we did not [Audio Gap] optimize the performance marketing costs. So the purchases of likes or clicks in the net.

So maybe we did not [Audio Gap] optimize the performance marketing costs. So the purchases of likes or clicks in the net. So maybe we did not [Audio Gap] dynamic of sales, but we will see that [Audio Gap] certainly, they are very good when we move on to the slides focusing on profitability.

So gross margin in the second quarter was at a stable level, much like in the previous 2 quarters, so 54%. Now looking at the drop and giving a broader context to it, naturally with the development of Sinsay brand, gross margin is going to fall down because this is design and value segment with lower margins, and in this drop around 0.6 percentage point, that's the greatest share of the Sinsay brand in the entirety of our offer, and the remaining context is active managing of gross margin.

What does that mean? Those of us who are with us regularly might remember that in June, a quarter ago, we announced that the plan for this year was 1,500 openings, but we bet on quality. We don't want to dilute profitability, and we parked the so-called mini concept for further analysis. That translates into the reduction of the number of openings. But what it involves from the operational point of view is that in 2025, we entered with a greater stock for the new openings, greater stock so that means that we had greater volume of apparel to be sold, and in order not to stay with this stock in the Sinsay brand, our sales team actively managed this balance between the volume sold and the percentage margin. We've been operating at a lower margin recently. But at the end of the day, 54%, stable level, so much higher than still back in 2023, somewhat lower than last year, but we are moving on to the second half of the year with more arguments that we are going to talk about as the presentation progresses.

So again, a good quarter. We did what was there to be done. Certainly, more arguments are appearing already right now. And the third operational business leverage that we have, an impact on our operational costs. We are particularly happy about this area because 2024 was the year of building up our capabilities towards accelerated growth. When we look at the bar chart, the cost of were around PLN 300, PLN 320 per square meter but ever since the first quarter, these costs visibly decreased. And this is this efficiency that we are aiming at rigorously approaching the control of costs. And where have we managed to reach the greatest potential of cost efficiencies, mostly we built the hinterland that we needed in order to deliver the pipeline openings. So we've got leasing, we've got investment teams and the performance marketing we've mentioned. Last year in the second quarter, we spent around 10% for advertisement in the Internet related to the revenue generated in the Internet, but then it dropped to just 8%, which is a visible saving.

And the situation of the consumer returned to the normal level in the second half of June and in July, we defroze the spendings, but they remain at more or less the same level now. And the third area that contributed to the decrease of cost is logistics. Here, the greatest work was done. Last year, we launched a new warehouse in Romania, a new one in Bydgoszcz. We had many onetime costs. These processes had to standardize and normalize this curve of learning acquired the proper shape. And now we can already enjoy these efficiency.

What we can see in CapEx, what we communicated with the strategy this year and next year are the years of considerable investments in logistics, logistics, not only in terms of expanding our warehouse capacity, but also robotic solutions that will translate into those great savings in OpEx. In the second quarter, in our results, we had two events, single onetime events, and we will discuss them one by one.

Looking at the left-hand side of the slide, warehouse fire in Romania. There was one location in our operational systems in our operations. We divided into 2 parts: DC and a smaller part, FC, so the one for handling Internet orders. And the final amount that we lost in the remaining operational losses is PLN 351 million, including PLN 293 million working assets. So that's what we lost in terms of the actual apparel. But the rest is the warehouse with its equipment with this fitting, including the robotic solutions, unfortunately.

This is what we owned, and so that's the value of the losses. But recently, we got from the main coinsurer a decision about accepting responsibility for this event and positive recommendation of the advanced payment payout, so on this basis, it was clear to us that in remaining operation revenue, we should budget a similar amount. So in PLN, the impact of this event is neutral, and this is something that closes this part concerning our assets. But to give you a broader comment, the other part of our insurance covered the so-called business interruption, and in this area, we are going to now assess the margin lost on the stock loss, and you can see the bullet above showing the value of it plus additional costs.

Starting from the end of June, we work in a suboptimal level. A lot of orders related with Romania, of course, transported from Poland, which increases the cost of distribution, or the cost of renting out additional floor area. This is also part of business interruption. We have 9 months to sort it all out. So we monitor additional costs as we go. And we notify the insurer. Once this period is over, the time will come to sum it all up and also to settle the accounts within our insurance policy. So that's the first event.

And in our results, we also have another one. And this is related with the update of the balance receivables after disposal of Russian business. And here, just to remind you the context in May 2022, we divested the business in Russia. And the transition period was envisaged 4 years, we shortened it to 2 years. So at the end of January, that period was closed. The Russian investor took over what was there to be taken over. And our balance notes it nearly PLN 300 million for the sales of stores in Russia and nearly PLN 600 million was the receivables for the stock loss stock sold there within the transitory period as envisaged in the contracts. So taking at it from the point of view of the first half of the year, in the first quarter, we didn't see any payments coming. So that was a delay versus the schedule.

But starting from July, we can see weekly payments coming in a fixed amount every week by today. We've been receiving them regularly, but that's slower than forecasted at the end of the previous year. So on analyzing it all with the Russian company because this company is a debtor, so when we made a realistic approach to the possibility of them paying back, the schedule that was supposed to close in mid-2026 was prolonged until mid-2029. Now the PLN 30 million that we can see in the first bullet on the right-hand side, this is the result of it and calculating the value of money in time. So that's what was written off. So this amount in the balance sheet will be lower, but this is something that, of course, burdens our result in the second quarter.

And now extrapolating these flows a bit. Again, we took a cautious approach to the other stream of payments, namely those for the shares in the company or for the stores sold. And again, here, just to remind you, in December 2023, we got the first installment in December 2024, we got the second one. Now in December this year and the following year, we were supposed to get the third and the fourth one, the last one, $47.5 million each. But seeing what delays we have in this particular stream of payment for what was sold. Again, we decided to be cautious about that and again, prolong the repayment schedule concerning this part. And again, the same discount approach means that we see negative PLN 35 million burdening us this year. We don't know whether this will materialize.

As I said, by the end of December, there is the deadline for this payment to come in, but we want our report to be conservative and reflect as transparently as possible what happens in the business. So summing up all the components of this basic business that we have impact on. So margin and OPEC, again, the results of the second quarter look positive.

EBIT nearly you can see it on the left-hand side and EBIT was around PLN 700 million net, nearly PLN 0.5 billion the profit grew year-on-year in those categories. Now when you look at the margin, so the clouds below the bars, you can see that despite those one-off events, the margins, practically speaking, are only slightly lower than last year. And in the scale of the entire half of the year, the season spring/summer, we closed with even better dynamics. EBITDA, EBIT and net profit grew by double digits and over PLN 1.2 billion EBITDA for the first half is a very nice result, comparable profitability levels. Now we are entering the second half of the year with greater optimism, believing that things will only look up.

This is all for the financial results. Let's look at the secured inventory. As I mentioned, with the margin, our inventory is going to grow with the development of the network. These values at the end of the second quarter, we can see PLN 5.2 billion. It is going to grow, but we as the management of the company, we want these values regarding the inventories not to grow that much. And here in this short-term period, 1,800 and 1,900, this is the goal. I believe that we need 2 or 3 quarters. So in '26, we should be able to control the inventory.

The structure here is high quality. It is dedicated for the new stores being opened. So we are going to manage the inventory so that in the short perspective, we can go back to our short-term optimal solutions. Investment expenditure, over PLN 1.2 billion. So these are simple figures we've been showing you already together with our development based on the new stores of Sinsay. The expenditure is the highest, almost PLN 380 million in the second quarter.

As I mentioned, this year and the next year involves investments in logistics, PLN 0.5 billion. That was the first year in terms of investments and the new warehouse capacity, 20%. So over 1/5, these are new solutions regarding robotics, providing us the optimization of OpEx. The cost of one piece in the warehouse in Bydgoszcz dropped to 2.5x. This solution in the second quarter was not fully operational from September. We have full capacities over there. So we believe that the yield is going to be much, much better.

Our investment is also perceived with safe debt level. So the leverage here, 1.3. This is a very good result. This is all about the financial aspects. This is the end of September. So we should look at what is happening in this season. The beginning of the third quarter, this is back-to-school period. So you can see here, so that was a strong back-to-school period.

When we look at these blue boxes, the increase in omnichannel. So in stationary shops, this is 35% from mid-August until the first week of September, in online 40%, offline 33%. So this was the period of lower sales. So our dynamics was twice as good. So we are going back to good results. The weather in recent years was different, this year, however, it was a totally different season. So this back-to-school period was clearly visible in our results. When we look at the outlook for the third quarter, from the 1st August till the end of September, we can see 22% year-on-year increase in sales, positive response as for the autumn/winter connection in all the brands, Reserved, Cropp, House, Mohito.

As for the development from 200 to 200 new stores, this is what we plan for the third quarter '25 and good information at the end of October, dividend payment at the end of April, that was the first part over PLN 600 million. And the second part is going to be paid out at the end of the third quarter.

Now the targets for '25, summing up the quarters. We can see in this middle column, the first half of the year actuals. Looking at the top PLN 10.5 billion, these are sales from core business, an increase in offline, plus 90% and online 20%. So these are our goals, and these are the results. As for the sales, we are in the lower range of our dynamics.

Looking from the perspective of the second quarter, we are happy at the end of the day. When we look at the seasons and the second season is much stronger. We have 50% of sales generated in the second season. So we are happy about our goal. After the first half of the year, when we had some challenges ahead of us, the margin, EBITDA and net margin are at the top levels according to our guidance. So we enter the second half of the year. We had back-to-school period. Now as Black week, this is a strong retail sales and Christmas. So the periods for generating good margin is ahead of us.

So we will have a few, but we are happy about the goals that we want to achieve. So when we hear one more time with you at the end of the -- around December, so I believe before Christmas, we will be able to sum up the results from the second -- from the third quarter, and we will be able to give you the results and increase the guidance. This is all as for the financial results. So we can move on quickly to Q&A.

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