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LPP SALPP counts on good H2; sees chance to exceed its gross margin target in 2025 (interview)
Listed fashion group LPP believes that the outlook for the second half of the year is very good despite the challenges related to the fire at the distribution centre in Romania. The goal for this year is for profit growth to outpace sales growth, deputy CEO Marcin Bojko told PAP Biznes. LPP is maintaining its forecasts but sees an opportunity to exceed its gross margin target.
"The outlook for the second half of the year is really very good, and we are entering this period with considerable optimism," Marcin Bojko told PAP Biznes.
"We are pleased that we are able to operate effectively despite the challenges associated with the fire in Romania. The collections were purchased at a favourable exchange rate, and the strong zloty is helping us," he added.
According to the deputy CEO, this will also have a positive impact on LPP's margins.
"In addition, we have normalised costs, because in the second half of last year we invested heavily in development, logistics and the expansion of our leasing manager teams, and now the base is levelling out. We are maintaining cost discipline despite the temporary disruptions related to the fire," he added.
As the deputy CEO pointed out, market forecasts show that analysts are beginning to expect LPP to exceed its margin targets this year. The group previously announced that it expects a gross margin of 53-54 percent in the 2025/26 financial year.
"I think that in December we will be able to comment on this and possibly change the forecast, but it is still too early to do so. However, I agree that there are indeed more positives at the moment, and if nothing unpredictable happens, there is a chance of achieving gross profitability exceeding the upper limit of the forecast range of 53-54 percent. This would translate into EBIT and net profitability. We are doing our job and focusing on what we can influence," said Bojko.
"At the same time, we are maintaining our target of achieving PLN 23-24 billion in sales revenue this financial year. So, if we combine the forecast sales, the prospect of higher margins and keeping costs under control, we can see that there is a chance for improved results," he added.
The group's revenue in the first quarter, i.e. from February to the end of April 2025, amounted to PLN 4.954 billion (EUR 1.16 bln), an increase of 15 percent year on year.
Operating profit amounted to PLN 464 million (EUR 108 mln) and EBITDA to PLN 938 million (EUR 219 mln), against PLN 4.306 billion (EUR 1 bln) in revenue, PLN 411 million (EUR 96 mln) in EBIT and PLN 795 million (EUR 185.8 mln) in EBITDA in the prior year period.
In June, the group lowered its sales target for the 2025/26 financial year to approximately PLN 23-24 billion (EUR 5.4-5.6 bln) from approximately PLN 25-26 billion (EUR 5.8-6 bln) previously.
"Our primary goal for this year is for the rate of profit growth to outpace sales growth. We have all the advantages on our side. We will continue to invest in operational efficiency and logistics, control costs and work on our product range," said the group's deputy CEO.
"The sales results of the Reserved chain in the first half of the year show the work that has been done on the collection level and demonstrate how agile we are in addressing business issues," he added.
LPP SECURES CONTINUITY OF DELIVERY SERVICES AFTER FIRE IN ROMANIA
As Bojko noted, the group is entering the second half of the year with the challenge of a fire at its distribution centre in Romania.
A month ago, the company reported a fire at the CTPark Bucharest West logistics centre in Romania, near Bucharest, which is used by entities from the group. LPP conducts logistics operations there in the field of deliveries to a network of brick-and-mortar stores and online sales in Southern and Central Europe.
"Our distribution network management structure and the large potential of our warehouse facilities allowed us to adapt immediately to the new situation. Logistics operations previously carried out from Romania have been redirected to Poland. Currently, some of them are being processed from our FC near Bydgoszcz, and some are being handled by our second FC in Romania," said the deputy CEO.
"In mid-October, we plan to launch another warehouse in Romania, which we had already planned to include in our network. Regardless of this, we are actively looking for a new facility to replace the warehouse destroyed by the fire. We have various options on the table and will keep you informed of the results," he added.
2025 CAPEX WILL AMOUNT TO AROUND PLN 3 BILLION; TARGET OF 1,100 NEW SINSAY STORES MAINTAINED
The LPP Group intends to spend approximately PLN 3 billion (EUR 701 mln) on investments this year.
"This year's CAPEX will amount to approx. PLN 3 billion, which is slightly less than we initially assumed in terms of new openings, but we want to accelerate investments in logistics a little, especially now, after the fire in Romania. On balance, nothing has changed," said deputy CEO Bojko.
In line with its strategy, the group is now focusing mainly on the development of Sinsay stores.
"Sinsay has potential and is our driving force. We operate in markets with 300 million customers, and the saturation potential of the Sinsay brand is still low," the deputy CEO said.
"We wanted to open 1,500 stores of this brand this year, but a small group of so-called 'mini' stores included in our original opening forecasts in practice brought lower profitability than we had assumed," he added.
According to Bojko, because of that LPP decided that the target must be lowered to 1,100 stores.
"We are now testing the product mix in the smallest stores. In these stores, the home interior products accounted for about 50 percent of the assortment, while in medium-sized stores, fashion accounts for about 75 percent," he said.
"So, we are shifting our offer more towards clothing and we will see what the results of these changes will be. If they turn out to be positive, then we will unfreeze our pipeline," he added.
He said that this year's openings are proceeding according to plan and that the target of 1,100 Sinsay stores is being upheld.
"July was a record month, we opened about 120 stores," Bojko pointed out.
"We are continuing to open stores in Poland, but also in Central and Eastern European markets. We are gradually entering new countries," he added.
The deputy CEO of LPP pointed out that the Sinsay chain is maturing quickly, already recording positive EBITDA in the second quarter after opening, close to the average for mature stores. The average payback period is 15 months.
"We currently have no plans for mergers and acquisitions, we do not see any potential targets, and organically we have a lot to do and places to allocate capital," Marcin Bojko said.
As at the end of April, the LPP group's brick-and-mortar sales network consisted of 2,959 stores with a total area of 2,529,000 square metres in 31 countries. The LPP group was present in 35 markets online.
pel/ han/ ao/