Good morning, ladies and gentlemen. My name is Monika Wszeborowska. Welcome to today's LPP first quarter of this year conference. Today's conference will be hosted by Marcin Bojko, the Deputy President for Finance and Magdalena Kopaczewska for -- the Vice Director for Investor Relations.
I would like to present the agenda briefly before we start. We will start with a summary of our results for the first quarter of this year. In our case, the quarter is moved slightly in relation to the calendar year, we will mean the months of February, March and April. And we will talk about our plans for the foreseeable future.
We would also like to account the progress of our works concerning our long-term strategy for development until 2027, which we had a chance to present at the previous conference in April.
Today's meeting will end with a Q&A session. And the conference will last for about 1 hour, around 12:00, we should finish. We will try to answer most of your questions, but those that we have no time to answer, well, we will respond to them by e-mail later to email addresses that were used for registering for our today's conference.
Please ask the questions via the chat window. You already can see it on your screens. It's already open. So do please make use of it. And if after our meeting ends, you still have some issues that should be clarified, then do contact us, we would like to ask the journalists to contact the media office. The address is media@lpp.com. And the ones who are interested in business arrangements should contact the investors address.
I will return to this in the Q&A session. And now let's sum up the results for the first quarter.
After this introduction, everything seems clear. So we will move on to discussing the results. And the first slide is kind of self-explanatory. This is our main message after the first quarter, the very good 3 months of 2025.
We are returning to the profit growth path, and we have had the EBITDA of nearly PLN 1 billion and nearly 18% of year-over-year growth. We've had double-digit growth everywhere, and we are even more happy because we have completed them with good sales dynamic, both when it comes to reference stores, we've systematically developed our network and e-commerce was also growing really fast compared to the market, plus 27% in the constant currencies.
The good profitability results were completed with some discipline when it comes to costs and in the next quarters, we would like to be -- to stay even more disciplined. And as Monika has said before, we systematically implement our strategy. And as we have announced as the Board and as we keep announcing, we keep focusing on quality. We operate in a flexible way. It is the same in this quarter, and it will stay the same in the coming periods.
Our finance and business teams keep checking out the profitability of the new networks. And after the first quarter, we can see that this is the first moment when we can check something. We are taking a slight pause and looking at the smallest format of our Sinsay stores. We will reach the details later on. But as a whole, our strategy is still implemented nicely, and the progress is as planned. And at the end of the day, as we say very often, what counts is the quality and the profitability of our development.
So to give the message, some size in numbers, when it comes to business operations, it was plus 4.3% in the stores that have been open for over 12 months and we -- so we grow not just by opening new stores, but also when it comes to the reference stores. And when it comes to e-commerce, it's 27% of growth in CC, which is a very nice result.
Other players in this area had one-digit dynamics, and we would like to grow by 25% year-over-year. And we've been quite successful when it comes to implementing our goal. 136 new stores were opened in the first quarter. And Sinsay stores have been launched in Albania and Kosovo, 2 stores in Albania, 3 stores in Kosovo, and the other brands will also launch in the coming weeks.
Business is going well. And we -- in our strategy, we want to remain a company -- a dividend company. And we are happy to announce this every 6 months. At the end of April, it was the payment of PLN 330 the advance on dividend and the proposal for this year would be PLN 660, which would be plus 8% year-over-year.
When it comes to our business growth, we've been quite consistent, and our financial results are also growing. The sales have grown by 24%, so we've had PLN 5 billion revenue. EBITDA has grown by nearly 18%, plus 13% year-over-year of the operating profit and the net profit is plus 20% year-over-year.
So the double-digit growth is noticeable. And this is pleasant news. We want to stick to this because in the recent months, we were building this capacity, which also needed investments in the background and the costs were higher. But now we think that the scale that we have built is adequate. And in the coming months, we will focus on effectiveness.
When it comes to strategy update, this is a snapshot of what has happened in the first quarter. 136 new salons and that would be 112 Sinsay stores. This is the rate at which we opened new stores. Plus we haven't forgotten about Mohito, House, Cropp or Reserved. There have also been new openings.
When it comes to the growth in the region, it's plus 10% in Poland and 30% abroad. This is our natural direction. We are developing in South Europe or in Central Asia and in Eastern Europe. So these are our main regions: Central Europe, Southern Europe and East.
We've grown them most in these fields, and we can see good profitability, good sales and good results there. After the first quarter, a lot of our growth has been completed there. And this is a quick overview as an introduction. And now we are taking a deeper dive on taking a closer look at the first quarter financial results.
We will start with the sales traditionally and then we will move on in the profit structure. The sales in the reference stores was good, 4.3% in the first quarter. When we compare it to 2024, it was quite demanding because it was over 7%. So the base was high. And in the first quarter of this year, Reserved like-for-like was over 20%. Since when we saw one another in Warsaw, and since the -- since late April, it was also with a positive result, plus 1% LFL.
And the stores that have been opened for a longer time also received quite a nice growth. And if we add new locations to it at our other base, e-commerce, which was responsible for nearly 30% in the previous quarter, then we receive a large two-digit growth, 24% in CC.
And when we look at the geography structure, the really good results were noted in the West, in Italy, in Great Britain, in Germany. And this results from a certain reconstruction of reserves. It had a difficult first half of last year, but now it is getting really good results, we can see the result of our new strategy.
And in Southern Europe and in Poland, the growth is slightly slower. In Czech, Slovakia and Estonia, the growth is slightly slower. Estonia is a smaller market, and we are also restructuring there. But we are sure that the stores will come back after remodeling and they will start adding to the numbers. But after the taxes were increased in our current war situation, you can see that the consumers spend less there, that they are less certain about life.
Our direct neighbors, Czech Republic, Slovakia. And recently, we also mentioned Hungary, which was a little bit slower earlier, but now we can see it regrowing a little bit. And in Slovakia, in Czech Republic, we would probably count for more, but there is a certain growth.
And when it comes to e-commerce, in Italy, our Sinsay application was launched and the participation of the Sinsay app was 80%. And some additional information. Since late 2024, we've been operating the British market in B2B model. So the offer is sent from Poland and the growth there is also significant. In the coming months, we will definitely develop our offer.
The sales grew by 24% in CC, and it was completed with a good gross margin of 54%. The margin is lower by 0.1 percent point year-by-year. And as we've said in the first slide, we are doing our strategy checks, and we are reducing our opening plan for this year, but we are focusing on the quality.
And this also reflected in the margin in 2024, late 2024, to use a more operational phrasing, we were ready for the openings. We had a broad pipeline, and we gathered quite a lot of inventory for the openings, and we are postponing them for the further parts of the year. The remaining openings will -- well, we will observe them and we will optimize them.
And we consciously operated at a lower margin to generate sales in the stores and not to be left with the stock for the coming periods. 54% was a good level of gross margin.
And looking forward, mainly on A/W on the autumn and winter period, we bought the collection at the exchange rate of about PLN 40. And now we are observing an upside, which will help us in the second part of the year. So the margin when it comes to A/W from August onwards will be facilitated by the macro conditions.
The third leverage, sales and margin in terms of operating costs. Here, we focus on the efficiency, which is like in the last months speaking, we built on the mass, but now it's time to capture more. We were investing into the background, into the manager leasing. We increased project teams, investment teams.
We believe -- specifically in the strategic check and strategic pause for the smaller stores, we believe that our resources are enough. We focus on optimizing the logistics and they improved by 1 percentage point year-over-year is the beginning because the first quarter was the period of stabilization of the costs. And in the coming quarters, we want to show even bigger efficiency.
And coming into more details of the drop of the cost of OpEx per square meter, definitely what helps us is the increasing share of Sinsay brand in our network, which have a lower OpEx. Stronger Poland against -- Polish zloty against dollar is one part of the image. But stronger PLN against euro is a positive impact on OpEx most -- almost 100% of our rent is expressed in that currency. So strengthening Polish zloty against euro helps us a lot.
Also, the good growth in the Internet, plus 27% in constant currencies, we are able to achieve even with a slower marketing expenses last year in the first quarter for the performance marketing, buying the clicks online, we spent over 10% of our spendings in that channel. But this -- the first quarter this year, it was less than 9%.
So we still have some reserve -- budget reserve. Here, we assume the level more closer to 10%, but this growth is a good indicator. So we'll leave it at that as a tool for the future to use in the future when we need it.
And now the three leverage of our results, the revenue, gross margin and percentage and costs, we arrive at a very good profit levels. This we are happy with that because by the end of the day, but the sales is one thing, cost is another thing, but it needs to play very well, and it played very well in the first quarter.
Nearly PLN 1 billion EBITDA profit, PLN 0.5 billion operating profit and over PLN 30 million of net profit. We see double-digit growth in this year. The first quarter 2024 was also very good. So the growth from a high -- already high level is very nice. Profitability is comparable or just slightly lower.
And as I already mentioned, probably in the first quarter and also in the second quarter, we will be operating at a lower gross margin. So in the second half of the year, when we will be on the straight road and with the inventory and the stock rotation and probably the positive impact of currency exchange rate, we are looking with optimism on the second half of the year. That's all about the P&L part and now let's look at the balance part -- balance sheet part.
In terms of stock and inventory, as I said, the first quarter, we entered with a higher opening plan at 1,500. After the strategic check, we are looking more at 1,200, this is reflected in inventory. The value, PLN 4.8 billion, a slight growth quarter-to-quarter, a slight drop in terms of PLN per square meter.
But as we looked at it, if we clean the results from the impact of the openings that we put into a longer time perspective, about 6 percentage, the result -- the clean result is about 6% higher. So it's about PLN 1,800 per square meters. This is our target for the next 2 quarters if the situation stabilizes, so we have a clear situation, clear picture here. We know what to do, and this is what we will be focusing on as well apart from the cost in the coming period.
When we look at the structure of the inventory, is the commentary at the back of the slide on the right, we have already booked some stock to A/W, so the whole year models that we can sell in the first part of the autumn and winter, we have transferred that and our buyers actively worked with the suppliers, and there is certain tolerance. And at this stage, we have orders for 90% of collections for A/W, but we worked actively on that. So we have still room to manage that.
So the turnover -- the same as with gross margin, the turnover, we have some potential here that we will be using over the next periods. The increased inventory, of course, also means slightly worse working capital. It is still negative -- negative working capital is a positive information. Of course, the turnover cash cycle, minus 27 days.
As I said, with the inventory that we have, we have a clearly diagnosed situation. We will manage that over the next couple of months. This is a business matter. So we will be actively working on that, but we look at the lower part of the diagram, the liabilities.
Here, I just want to comment on the supplier finance, which is our factoring -- our reverse factoring. Our limits at this moment are use at 58%. So we still have room to maneuver there with the finance team, we're working on increasing the limits. But at the moment, we have 58% of use. It is a very comfortable level.
So still there is room to grow. Definitely, we have room to grow here. And we are certain that the coming periods are stable and we are not threatened in buying the new collections, the good EBITDA, good working capital also means positive cash flows.
And as I mentioned, it's nice to pay out dividends from the cash flows because this is our plan for the many years to come, more than the next 3-year strategic perspective, to share our profits with the shareholders. That was one part, more than PLN 600 million paid by the end of April. And the second part is investments.
And in terms of CapEx, more than PLN 600 million of spendings in the first quarter, and indeed here, we spent money on logistics. We invest a lot into logistics, as we said we would, PLN 293 million of spend on logistics, expanding the storage spaces that we currently have and continued investments into robotic solutions.
Let me pause here for a second at the logistics area, this CapEx this year is about PLN 1 billion, but this is a high-quality CapEx. It will bring yield through by the end of the year. It will yield savings in logistics operations, storage operations.
In terms of our fulfillment centers, the logistics assets dedicated to handle online sales in Bydgoszcz and in Podkarpacie, the two locations, already by the end of summer will have more investments completed in Podkarpacie region, about 50% in Bydgoszcz at the beginning of August, we will have completed the whole investment projects for that region and by September, October, we will be doing ramp-up operations, speeding up and increasing the scale of our investments. We need to be ready with the rollout of the warehouse, it takes place in stages, but we want to be ready for the high season in October and November.
For example, the Black Week event in terms of Romania and FC in Romania and in October, we will have about 1/3. We should have about 1/3 of solutions, logistics solutions implemented and the ramp-up of the location too. So we want to achieve the full capacities of that stage there. It is planned for the first quarter of the first year.
And in our distribution center in Romania, where we're installing the second sorter. So starting with late autumn this year, we will be able to effectively operate our Southern markets. To remind you, we are growing there the most dynamically.
Profits are nice after the first half year, but we are also happy with the debt level because we are paying out the dividend. We are investing strongly into CapEx, into logistics solutions, but the leverage after the first half year is 1.3. It is increased compared to the previous quarters, but it is still on a very comfortable level. The same as in the previous years, we are managing liquidity and that very conservatively, very safely.
1 and 3 (sic) [ 1.3 ] is twice less than our internal top limit and definitely below the limit that we expected at the beginning, entering this year. So in terms of this, we are happy with the result, given the huge scale of our development, we are still on the safe side, and we are doing this responsibly.
With this slide, we end the detailed discussion of the results of the first quarter but we are in the middle of June already. So we have a trading update for you. We will look at what is happening now, the plans for 2025. This is a general slide, but what has been happening in the last weeks, I would like to ask Magda to comment on that.
At our last result conference, as we were announcing the Sinsay development strategy, we were announcing and commenting the Central Asia markets. We meant countries like Azerbaijan, Uzbekistan, also expanding in Kazakhstan. And now I would like to say a few words to justify why this region.
We believe that this is a perfect region for Sinsay's strategy, the demographic potential of the region and the demographic structure of it. So the society -- there's a young society with a large number of families, which have 3 or 4 children on average. This is the potential demand for children's or women's clothes which would be exactly what Sinsay offers.
Apart from that, the Central Asia consumer is sensitive to prices. And Sinsay has attractive prices because this is a design and value market -- brands, sorry. And so we want to offer it as an alternative to local marketplaces because half of the people there still shop at local marketplaces for cloths.
This is slowly changing, and we want to be the first ones offer the clients some modern solutions. And as store, which is close to the place where they live, supported by the online sales and the application, which is precisely Sinsay's offer.
And we are planning to launch in the new countries in third quarter of this year. In the coming year, in the first quarter, we want to launch in the new -- on the new European market in Moldova. So this is the information when it comes to Central Asia. Thank you very much. So this was the update on the region on Central Asia.
But if we look more broadly, on a more strategic perspective and the whole networks development, I would like to point out that, as I've mentioned initially, we are monitoring our openings as it goes. We are opening new stores, we watch them from every perspective, business perspective and other perspectives, we look at the results.
And from such analysis in the real time, we have noticed the special format, the so-called mini format. These are the smallest Sinsay stores. 450 to 550 meters in floor space, they are closer to the bottom line of the stores, which is 450 meters. And some of them have a nice performance.
But when we look at the broader rollout, the EBITDA is good. After the first quarter, it's plus 20%. But compared to the medium-size and the remaining formats, some stores are staying far behind, and we are responsible. We are trying to focus on profitability, on quality, so this is the moment when we implement the strategy, and we say, okay, so now it's time to test it, and we are taking a pause. So we are looking at this format.
Our preliminary analysis shows that we have to work on the sales mixture, let's say, what's always been strong for us, the fashion elements. Well, in the smaller stores, due to the smaller square footage, it's a certain compromise. We have the home section there. So some basic goods and our fashion offer, a little bit of it.
But our distinctive element is the fashion element in those small stores. So some of them perform well and some of them will be looked at and investigated and optimized in the coming months. So we will draw some conclusions here when we improve the profitability, and we will -- well, the pause will end, and we will probably turn it into fast forward in a few months.
But what we are happy about is the fact that we've quickly identified this impact. It only pertains to the smallest format. So our basic solution for Sinsay to be the driving force and development in smaller towns, we have those stores and they -- if they are run well, they perform well in bigger cities and in smaller towns. So we are focusing on this very format.
And when it comes to numbers, we can see them on the next slide. This is the first -- the first part of the graph on the left, EBITDA is 20%. The average includes the newly opened salons, and we have more data for analysis.
So 10,000 stores is this data. So in this collection, there are many locations as our managers are warming up, so they will provide a lot of data. And in the 5% share of the smallest stores, about 3% is the stores or the square footage of the stores that we have to look into. But we will keep emphasizing this.
We always focus on profitability and the quality of the new openings. We are targeting 1,500 openings a year. The profitability counts at the end of the day more. And our Sinsay network shows this on the right. The profitable stores' share is increasing. And the first quarter results, the large growth and very good profits show that this attitude has always been working, and it's still working. So we will stick to it.
And at the same time, with the strategy checkup and verification, in 2025, so for this year, we believe that we have a good pipeline portfolio, it's good quality and opening 1,200 stores of all the brands and is a good aim and it is feasible at a good level of profitability. It will also mean another increase in our development rate. So plus 1,000 stores is something that we are aiming for, for this year.
And this slide is the last one for the summary of the first quarter and now the more current situation. And now I will ask Magda to support me with discussing the current sales situation.
This year, the beginning of the second quarter for us was a quarter influenced by the weather, meaning that historically low cold May, this was -- in fact, affected the whole industry. On the slide on the right, you can see a chart showing the temperature deviations to show you what I mean. This chart is for Warsaw, but similar trends were noted in other cities where we operate.
Over the same time, our stores offered summer collections. For example, linen dresses, but the purchasing motivations of our customers for this clothes because of the weather and low temperatures were quite low. Because of that, in May, we recorded negative one-digit likes, but June, we can see -- in June, we can see significant improvement. We can see two-digit likes. We can see them over all our brands, the highest for Reserved brand. So we can say that the delayed demand effect worked. We are happy with June.
But for the entire scale of the second quarter, I don't know what to say because we are before the sale of period, which will also affect the results of the second quarter. The sell off is planned to start in the second half of the month, slightly later than usual because we are accounting on interest of customers in summer collection over the next weeks and days. And we want to sell it as much as the summer collection as possible at the regular prices.
Speaking of the second quarter, also openings of the stores in the second quarter, we are planning 300 stores of all our brands, mostly Sinsay brand. So the accumulation of the openings of new stores, the same as last year, will take place in the second half year.
Thank you. And now moving on to the summary of the entire meeting and recapitulating the information that was presented today, reducing the openings target from 1,500 to 1,200 is one factor that influences our lower-than-expected revenue this year.
And what Magda mentioned, the coldest May in the history elsewhere than in Kazakhstan, which it was the warmest month, but we saw that we are developing in Asia. But at the moment, we only have 20 stores there and all the other markets had a similar trend like Warsaw, on some days, 8 degrees below the historical average.
So May was a difficult month for us. June looks more optimistic, at least the first -- the beginning of June, but to remind you, in September 2023, we had a similar situation back then. It was the warmest September in case history and all the back-to-school sales and the standard sales were moved into October. And finally, the quarter overall was closed below our -- slightly below our expectations.
So looking at the bigger picture of the current uncertainty due to the May weather, we decided to reduce slightly the growth goal to make it realistic. But on the positive side, we see that in the second half year, the positive macro and our cost discipline will be what we will be sticking to and gross margin and OpEx to sales ratio we keep our goals -- our initial goal. So overall, the difficult situation caused by the May weather translates into the top line.
And some key takeaways of our today's meeting, we are about to finish. This is the last slide for the day. So we had very good sales compared to the market, 24% increase in prices, in constant currencies, I mean, which is a very good dynamics compared to the overall market, including e-commerce 27%, which is about our strategic goal.
At the same time, cost efficiency slowing down the OpEx in the first quarter and this strong focus on continued optimization of costs in the coming quarters. So this is our approach. It's a traditional approach because given the scale of our growth, the last investments had to happen, but we can see that in the first quarter, some effects, some major effects are realizing in two-digit growth on every level of growth, PLN 1 billion EBITDA after 3 months.
And what we keep emphasizing, we are doing something that is not done anywhere else. We have ambitious growth over more than 1,000 new stores every year over the next 3 years, more closely to 1,500, doubling the growth. The profits, so we are close to peaking the average, but there are several risks to get there.
We are doing this responsibly and with a focus on quality. And after the first quarter, we are really becoming reliable and we are determined to ensure the quality of the growth, and this is what we will be focusing on moving forward.
That's all from us. Thank you very much for discussing the results. And now let us move on to the Q&A session.
First question, do you see any risk for the gross margin in the coming quarters due to high level of stocks inventory? What is the risk that you will have to reduce again the openings for 2025?
The first part of the question, as Magda said, traditionally, in mid-June, we are moving into the sale of season. This -- we are delaying this season. We hope that this delayed demand in May will materialize. And what I can say in terms of numbers over the last days, we can see not only very good likes, and these like are realistic.
They will not keep at 30% for the whole month. But over the last couple of weeks, we have seen improved margin better than in the first quarter year-over-year, so it's hard at this moment to say what will happen. We will be looking at the market. But over a short period, this will be optimizing that.
And the second half of the year, we are entering that with a new collection with a better macro contracted with a stronger PLN against U.S. dollar. So we are focusing on the future.
But the second question, the question was, what is the risk that you will have to once again reduce the number of openings planned for this year. Our goal is ambition. We understand that it's going down with the goals, but we are doing this responsibly even if I remember correctly at our last meeting when we presented the broad strategy, there were many questions.
If the goal is not too ambitious, will the management, Board be ready, if they see any risks to take a step back? Yes, we are not running after a round number. This 1,500 is our ambition, but if we see that we are about to open many stores, the minimum stores is a major share of our portfolio.
And if we stay with them for the next 5 years with lower profitability, well, we will always choose the quality and profitability, maybe the 20% that we saw with our efficiency is good for someone, but we believe that with the overall potential for Sinsay, we are certainly able to find at this moment better, more profitable projects than the ones that we already have. And then our mini concept, we are working on that concept. So in the coming months or quarters, we will reactivate some of them, and we will resume them in our portfolio.
What was the OpEx margin without the growth of the floor space?
I think I have to think about the question, and we will come back to you with the answer. Let's leave it at the moment.
23%, 24% revenue, aren't they conservative? Usually, the first quarter revenue represented 20% of yearly revenues, which would amount to PLN 25 billion this year.
Yes, I agree with this simple extrapolation based on the first quarter. But as you could see, the first quarter was good, May lies was minus 7%. And looking at the history that I mentioned the September history and the entire third quarter 2023, partly in June, we will recover the demand, but we did not know at what scale.
But the second part of the drop is the lower guidance of the openings, but we keep the profitability maybe at this stage, indeed at this moment, we would expect more the middle range -- middle part of the range 20% to -- 23% to 24%. But for example, our conference in April showed that there are many things happening on the market deliberation, they coincided with our communication of uncertainty. The situation is dynamic. So we are cautious about our forecast.
Could you explain the PLN 1.1 billion outflow of the financial means in the first quarter? And how is this affected by Russia, which is estimated at PLN 283 million? And how is it -- and to what extent it results from the bookkeeping, which will be reversed in the first quarter of the next year?
It could be bookkeeping when it comes to our cash flow in the group perspective. Our liabilities and -- our liabilities should be calculated together. So we have some liabilities within the group.
And if we sum it up and if we add other items when it comes to liabilities, so this is not business in which everything is kept in cash and a small sales percentage. Our scale is growing in this quarter. And in this quarter, it's been -- it's presented itself this way. And if we look at the liability cash flow in the same cash flow summary, you can see that. But this is a question that we can come back to after the conference. We will address it via e-mail.
And when it comes to the second part of the question, PLN 283 million estimation is a good scale as well. It's discounted -- it's the discounted revenue from the Russian company. And the first possible date for that is December 2025 and the last part is December 2026.
When it comes to the e-commerce tax, what can we expect?
I would probably need more details -- a more detailed question.
I don't know the details. So I think that we will look into it with our e-commerce teams, and we will come back to -- well, we always come back with answers. So this time it will not be different. But yes, so we will also present our view.
We have two questions, which are very similar, so I will read both. Do you want to introduce in Sinsay, the same technology that you have in [ lefties ]? Will it be possible technologically when it comes to the cash registers and the changing rooms? So I'm talking about the self-service cash registers.
Yes, it was tested last year. It was about 40 stores in Sinsay. And we were waiting until the very end of the year to summarize the results because one -- it is -- on the one part, it is the flow when it comes to the cash registers. And the second one was the inventory because we -- because as you probably know, in Reserved, Cropp, House and Mohito we have such tags, so we can -- we use the RFID technology, and we can use it in the stores.
And when it comes to Sinsay, as it is present in the design and value segment, the technology is not there. So we have to rely on some honesty on what the sales are like in the store. But after such inventory, there are no negative impact. So in larger cities, the losses were larger than in smaller towns. But generally, they were more -- they were much lower than when we were -- than our assumptions when we were entering this concept.
And in the new locations, the investment team and our designers are already taking into account the floor boxes, the cash -- the self-service cash registers being present. We have designated 200 stores with the highest -- the 200 busiest salons, let's say, because there it makes most sense.
Could you explain what is -- what are the other financial assets with PLN 724 million?
We will come back with the answer after the conference.
Why such a high LFL reserve? Is it the effectively lower base?
Partly, yes, it is a good comment. As you remember, the first half of last year was slower for Reserved minus 5% like-for-like. The second half was stronger, but internally, the brand, of course, got very ambitious goals. And the current likes that they have 20% or 30% is more than our internal plans for the brand. So it's not the low base behind that but the good collection of the brand.
Another question. How are you planning to deal with excess stock? Please describe it in more detail.
As I already tried to tell you during the presentation, we are transferring stock from S/S '25 to the next season, these are the all year models -- partly all year models and know that the models that we will be able still to sell in the first part, and we are using our tolerance, the margin, the limits because over 90% of the collection for Autumn/Winter were ordered. The rest was not.
We have some flexibility with suppliers. We have long-term relations with them. So we're able to transfer and move some things to change, to limit some orders. So this way, we are normalizing the stock and distributing it equally over the next months. This is our plan, what we are going to manage it finally not to be left with the current stock.
And the second part is what we saw in the first quarter, we operated at lower gross margin. But overall, this generated good sales and good profits.
At the beginning of the presentation, you said about continued optimization of SG&A. Please what levels -- tell us what levels of SG&A per square meter we can expect?
This is more in terms of SG&A to sales ratio, the same as in the first quarter, we were below than the last year figure in the clean perspective by 1 percentage point. But this quarter, we would expect the same, but in the perspective of the fourth quarter, the efficiency should be much higher because the cost base will be leveling. As I mentioned already, we invested much more in the capacities in the second half of the last year. So the robotic solutions and the CapEx that we are investing in, beginning with the end of September or October, will be yielding the first effects.
Is the current sales below the expectations likely to have negative impact on the margin?
We will see that, we were looking at that. We are doing our best. We are entering the -- we are postponing the sales of season. We will be looking at the market. But for the moment, the margin seems comparable year-over-year. Over the last year, it was even slightly better, so we have a good start. Speaking of margin, what -- how the quarter will end, we will see that in September.
What is your diagnosis of relatively lower KPIs for many stores compared to higher Sinsay stores?
Yes. Again, I will try to discuss that. I will be repeating myself, but we are looking at the offering, the products, the sales per square meter is the highest compared to other concepts. But if it was about 10% to 15% higher, the sales per meter, the profitability would be at a good level.
So going back one step, at this stage in the next coming months, we will be focusing more on optimizing the sales mix, the proportions between the basic goods and home goods and our fashion offering because the fashion offering has higher price points.
When we take this into consideration into the average over the large numbers in a typical store, it's about 70%, 75% of our fashion offering in a typical store, but in the smallest sources model 50-50 ratio. So in the next coming months, we will be going into that direction.
My question is to confirm that in the first quarter, the company did not do any sales to sales agents and that the results were not included transactions with business partners.
Yes, we can confirm that beginning with end of January 2025, which is the end of our financial year. As Monika mentioned at the beginning, it was the last -- the end of the transition period, the last transaction to the sales agents, so neither revenue nor the margin affected our results.
You also mentioned the slower consumption in Czech and Slovakia. What about consumers in Poland, are they shopping spontaneously? Do they do impulse shopping? Or do they look at every penny they have? Are they looking at price increases? What are your observations?
This is a very interesting question. Given the macro indicators, the condition of Polish consumers were slightly worse at the beginning of the year, but last month, we saw a high increase -- positive increase. What we see on our side -- in Poland, the likes were good. They were positive, both in the Sinsay brand and in the Reserved brands.
And when you look at the Reserved, which is our premium brand with the higher prices, well, of course, a few questions ago, we said that maybe they had a low base, but if we include the ambitious challenge for the Reserved brands that the Reserved brands is over with, it means that Polish consumers are in a healthy condition and good growth in the premium brand and in design and value brands, which is Sinsay.
So it means we have good consumers in Poland. This is our conclusion based on our data that we are looking at every day and good online sales. So I will leave you with these conclusions based on this data, you can analyze them in more detail, but we do not see any outgoing customers from the more expensive brands.
I have noticed one question. Is ceasing the sales through sales agent, does it bear the risk when it comes to the inflow of the revenue from the Russian market, what could be the scale of this phenomenon?
This is the second part of the business or the final time of the transition period after leaving Russia. We talked about this in the previous time, but since late January, we haven't had any sales there. It's about PLN 600 million when it comes to revenue. We are not controlling it after our disinvestment.
But looking at the history, the first quarter and the second quarter, about -- around June, we had the first larger incomes and larger payments. And we are expecting this now at the end of June and July or August, which usually is that the sales are speeding up and then the cash is generated.
The company works on its own now, and it's after the transition period. It's -- we do not support it in any way. So it has to start up its business and work for it. So we are observing the situation.
What about Ukraine? Are there any attractive locations available there?
The demand in the Ukrainian market is good, and to give it some number -- to provide some numbers, I think that this is the value added of the whole Q&A. So the increases in LFLs were large, in the half -- the first half of last year, it was plus 20%. And as we were approaching December, they were normalizing.
So we have a very high base. And we are observing a certain slowdown, but it is stabilized on a pretty high percent -- a pretty high level because 20% LFL, well, it still gives us good results in 2-year view.
When it comes to locations, and the profitability is still very good. And when it comes to the locations, our portfolio is limited to 400 of the many locations. And when it comes to geography, they are mainly in Ukraine, Greece and Italy. We haven't mentioned this in the presentation, but it provides a good view. So the locations are there, but the smallest ones are also slowing down in Ukraine a little bit.
How about June and July? Are you noting an LFL increase? And if so, then in which markets?
In the LFL perspective of May and June, I'm looking at Magda to provide some support, but the likes are still a little bit negative. But if the coming days, the June days will behave just as the last 2 weeks, I think that we will quickly move on to positive results.
What about the estimated rent costs now in Sinsay? And what about the other brands?
When it comes to Sinsay, the typical store, depending on the size is 6% to 8% when it comes to P&L. And when it comes to other brands, it's higher, much higher, nearly 12% to 14%.
And what's the distribution of the plant since openings when it comes to the size?
We will come back to you with this information. But if we go back to the profitability slide when it's seen in relation to the sizes, this will give you good information. Well, we want to saturate the sizes. So there will be the XS and S sizes, there will be fewer of them.
And when it comes to expansion, is there planned expansion to other countries than Moldova?
We are looking at other countries in the region. For example, Kyrgyzstan was proposed here. So we are implementing what we have announced when we were discussing the strategy. And we are -- for now, we are limited to this portfolio.
When it comes to Central Asia, do you have a chance to fill the gap after the lowered Sinsay opening rate? Or was it already included in the 1,500 openings?
They were included. So to answer directly, it will probably take 2 or 3 months and the year will be closed when it comes to the potential of development. So it would be 100 -- so 1,200 is a safe goal in which we are trying to achieve.
And when it comes to Central Asia, the development shows that you are approaching China, which was your long-term goal. So are you thinking about debut in China?
I think that for the coming 3 years, we will focus on the markets that were announced in the strategy. We are focusing on China as one of our supply directions, and it might be a plan for the perspective after the 3 years have passed or when the Sinsay's potential is fulfilled, but it is difficult to imagine because as we could see in our strategy presentation, the possibilities and opportunities there are large. So we will have jobs.
Okay. When it comes to Great Britain and B2B, is everything sold there classified like this? And is it e-commerce or off-line?
It is e-commerce. It is included in e-commerce. Since last December, we've been working in this model since last December. And this was connected with fulfilling some tax criteria.
We had to deal with some official -- with some bureaucracy in Great Britain, but the FC and DC assets in Poland are also available there. Before it was the store is limited the 5 stores that we have in Great Britain. So this is a quality change, and we can really increase the sales there.
And what is the return rate when it comes to 2025?
It is about 30%. It depends on the brand, but we also try to monitor it here and to keep our policy for e-commerce or logistics, for example, the free shipment or free returns in the stores so that the returns are maintained on a similar level, and it is about 40% to 30%, it is the lowest in Sinsay. And in the brands with higher prices, it is higher, but it differs among markets.
In Germany, it is the most, let's say, distinctive market because it's 50% plus because people there are used to doing this. When it comes to returns, and Sinsay, we are very happy that as our calculations show 20% of the Sinsay customers who return goods do it in the shops. So -- and they -- as they are there, they add -- they buy some more products.
And as I'm speaking, I would like to return to the question concerning the financial assets with PLN 724 million. It is in the 13th note on the 29th page of our financial report. And in this number, the largest amount is the advance on dividend.
You've improved your sales in reserve. What are you going to do for Cropp and Mohito?
This is standard our operational work, the design teams, project teams are working hard on that. We are collecting the feedback. We are happy that as part of -- as the months go by this year, the results are improving. They are still below our expectations but to -- these are two separate brands.
Mohito is our most profitable brand. In terms of percentage share in revenue, it's about 6%. But in terms of percentage profitability, it is very good. It is the highest of all our brands. So the brand has more room for improvement.
There were periods, like Reserved last year, which shows that in one season, you can make a full turnaround and improve the quality, to remind you, minus 5% on likes for Reserved in the first half of the year, plus 7% in the second half of the year and very good results this year. So this is our systematic work.
And in terms of Cropp, looking at the latest data, it is an interesting observation, but Cropp suffered on leaving Russia because Cropp was very strong there, so we need to find another definition for it. But as we are developing in Central Asia and Eastern direction, this Cropp brand has good results there.
So perhaps looking into the future, there is a direction for development. But let me quote Marek, the CEO from our April conference, Reserved and Sinsay are our focus, the other heritage brands do their job, they provide cash, we want to them to make it as good as possible. They are developing in their niche market. But moving forward, we are speaking of the three brands that represent about 15% to 20% of our sales.
What is the significance of development in Eastern Europe and Central Asia in the structure of the openings in the 2027 strategy?
These are our key regions. And as we monitor them, this is what we put our best on. We have the know-how there, and we know that our presence in Great Britain and Italy with the Reserved brand is improving year-over-year.
2025 is looking very good, but Central Europe and Eastern Europe and Central Asia and Kazakhstan, we have a good sample of stores there. We can see that our approach and strategy is working. We are strong there.
And also with the latest press information, our friends from colleagues with the value for money are entering the Western Europe. So the direction is okay. It only proves that this is a good direction, and we are focusing on our regions. The ones that's mentioned in the question, we are developing fast here. We want to secure a strong position there.
What is the period of rental contracts in Ukraine for Sinsay brand?
These are short-term rental periods but we have the option to extend the rental contracts for the lease contracts for the next. So it's 2 to 4 options for extension. So the effective period, lease period is 8 to 10 years but this is up to us to decide.
Please tell me what influenced the major growth of receivables and other assets that had a negative impact of the cash flow on operating activities?
I think we already commented on that. These are the accounting effects. So after the conference, we will provide you with more details and more data. In terms of receivables, our business is quite simple. The receivables in clean business do not exist. We get everything in cash from our customers. So these are the accounting effects that we will provide to you after.
When will you communicate the status of the -- of your arrangement with financial supervisory authority?
We are in discussions with the supervisory authority. We want to finish the arrangements -- the settlement with them. But at this moment, I cannot comment. I cannot tell you what are the current arrangements. The situation is monitored by our lawyers. So as soon as we have details and we can communicate them, we will publish them in the current report, and we will share the details with you.
There are some similar questions. Just let me have a look at them. During the quarter, you meet with institutional investors and the investors that you provide to them are not provided to the market of smaller investors. Could you share some communications with the market?
We try to communicate with -- between the quarters, we want to be available to as many investors as possible. Between quarters, we organize conferences. We will think what else we can do. We want in this period of strategic development, everyone to be comfortable. We want to be transparent with our numbers.
So we'll think how we can do it. Maybe we'll be actively communicating where we are, so everyone can reach us, what conferences we'll be joining as the company. So this is the first declaration, but you always have your Investor Relations address that Monika mentioned at the beginning. So contact us, please feel free to contact us. We will answer every question.
We are almost -- we are 15 minutes behind time. So the last question. By 2026 or 2027, LPP will have 100% in net growth at the existing chain of stores?
I would need to visualize the numbers, 100% profit growth by 2027, I will have a look at the question later on, and I will answer you later on. But the goal is the same for the next coming years.
Growth of profitability, development of the Sinsay stores. So this is what we are focusing on in 2025, optimizing the mini format and restoring as many projects as possible optimized to our pipeline. But over a long time perspective, there is one direction, which means the double growth in the 3-year time horizon.
This is -- I think the good time to end. We have -- we are 17 past 12:00. Thank you very much for accepting our invitation to the conference. It is our last meeting before summer holidays. So we would like to wish you excellent and great vacation, a lot of summer and a good rest and a happy return from your summer rest.
And after the summer, we will be meeting with you again end of September, and we are already inviting you to that meeting. Thank you once again, for today, and see you in September.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]
