LPP sees higher sales but net profits drop, Kendall Jenner ad boosts Reserved
today Nov 19, 2019
Polish fashion retail giant LPP is continuing to see climbing sales but its net profit has been hit by a number of factors, some linked to investment in its growth plan.
The company released its Q3 results on Tuesday with the owner of the Reserved and other chains seeing revenues rising 14.9%. Although the company reports its figures in its local currency, the Polish zloty, it also gave headline euro figures, with revenues up to €1.483bn from €1.334bn a year earlier.
The company’s operating profit rose to €91m from €76m, but pre-tax profit fell to €62m from €71m. And the net profit figure was down sharply at €25.6m from €43.5m.
It said reasons for the lower profits included “a less positive effect of net financing activities due to negative foreign exchange differences from balance sheet measurement, application of IFRS 16 and interest based on IFRS 16.”
And there’s also a much higher level of investment that the company has been putting behind its brands to take into account.
That investment has included new stores, as well as online expansion and high-profile, high-cost marketing. On the latter front, the company last month unveiled a major new Reserved campaign featuring Kendall Jenner. Called Ciao Kendall, it’s the largest advertising campaign in the history of the Reserved brand and launched simultaneously online and on TV.
The big investment seemed to pay off though and the film, directed by Gordon Von Steiner, has had a record-breaking number of views at around 20m, we’re told.
The group's investments in stores meant that at the end of Q3, it had 1,746 locations in 24 countries with Reserved being its biggest chain (on 453 stores). However, Cropp, and House now have more than 300 stores each, as does Sinsay following 46 openings in the past year, and Mohito has almost that figure.
It’s no surprise that Q3 saw the highest total sales growth being generated by the Sinsay brand with its major retail space expansion being accompanied by a strong reception for its collections from its female customer base. The company said the brand’s sales rose 41.3% year-on-year during the period.
But it wasn’t the only strong brand and Cropp and House both offered improved collections that boosted their performances, those brands’ sales rising 12.5% and 12% respectively in Q3.
Yet mega-brand Reserved was more challenged in the quarter, its overall sales rising only 2.8% as sales in physical stores in its domestic market declined (although we weren’t told by how much). The quarterly growth rate also lagged the 4.3% sales rise it saw for the first nine months of the year.
That said, in Q3, the label’s sales continued to grow internationally and Reserved (as well as Cropp and Mohito) now generate higher sales abroad than in Poland.
INTERNATIONAL AND ONLINE
In fact, international sales were a strong point for the firm, even though Poland still accounts for 55% of revenues. Group sales rose only 3.8% in Poland in Q3, but they were up 10% in the UK, nearly 20% in the Middle East, over 23% in Russia, and 12.2% in the Czech Republic. The firm’s other East European markets saw similar powerful increases for the most part.
The importance of the company’s growing markets abroad can also be seen from the like-for-like sales figures it recorded during Q3. Overall, LFL sales rose 4.2% for July to September with all brands expect Reserved seeing rises. But the biggest LFL increases were seen abroad. Double-digit rises were reported for the Ukraine, Russia, Romania and the UK, with a smaller but still positive increase in Germany.
And online is key too. The group saw e-sales rising as such as 50.6% compared to Q3 a year ago. That means online now makes up almost 10% of total turnover, a figure LPP wants to double fairly quickly as it rolls out e-stores across Europe. And while Reserved saw a weaker performance overall, it was partially boosted by its online ops as its webstore sales rose, with the strongest result online being for its kidswear offer.
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