LPP SA (LPPSY) Q3 2026 Earnings Call Transcript

2025-12-11 16:02:50 ET

LPP SA (LPPSY) Q3 2026 Earnings Call December 11, 2025 12:00 PM EST

Company Participants

Monika Wszeborowska
Magdalena Kopaczewska - IR Director

Presentation

Monika Wszeborowska ...

I'm Monika Wszeborowska. Welcome, everybody, wholeheartedly to the results presentation conference. Marcin Bojko, Deputy Chair of the Board and Chief Financial Officer of the Group; and Magdalena Kopaczewska, Director of Investor Relations are going to be your host today.

Ladies and gentlemen, our meeting today is going to be devoted to summing up the results of the LPP Group for the third quarter of the current year, in our case, that means August, September and October. And it is what we will start with.

Throughout the conference, we will also tell you about our plans for the nearest future and more long distant plans, and we will complete the meeting with a Q&A session. You have a chat box at your disposal. You can see that chat box on your screen. It's going to stay active and is obvious to you should you want to pose a question. If you still have any questions to clarify after the meeting has come to an end, please get in touch with our Investor Relations department, lpp.investor.relations@lpp.com and the media are invited to contact media@lpp.com. Our meeting today will last more or less an hour. So we will try to wrap everything up by 7:00 p.m. and stick to this time framework.

Let's move on to summing up the results, financial results for the third quarter of the present year. Yes, without further delay, since we have a lot of material to cover, let us move on to summing up Q3 2025. The most important pieces of information, like-for-like stores, that is those that have been in our network over 12 months, 4.3% of growth in like-for-likes. In a moment, we will see the details, but it is a very nice result.

The stores that have been with us for a long time is not the only part of our business. We've been growing systemically. You've noticed that maybe recently that 232 stores opened, including 200 in Sinsay brand, but we also keep on growing in the other pillar of ours that is e-commerce sales, PLN 1.7 billion in sales, increased by 22% year-on-year in constant currencies. So great dynamics.

And what always comes as a good piece of knowledge is the payment of the second tranche of the dividends, PLN 330 per share, so over PLN 1.2 billion paid dividends. Recently, the percentage of the dividend is around 4%. These are our plans.

So this piece of information is always very positive, one that we eagerly share with you. These are our operational results. As for financial results, here, we have 4 main indicators. Sales in the first -- third quarter, PLN 6.1 billion, 22% dynamics; EBITDA, PLN 1.7 billion; EBIT, PLN 1.2 billion; and net profit, PLN 800 million. Big nice numbers in Q3. They are really lifting our spirits.

When we look at the comparison, EBITDA is 48% of growth year-on-year, EBIT 61% and net profit 39% of growth year-on-year. So increases over the dynamics of sales, which, of course, means greater profitability as we will see in greater detail on the slides to come. The business results that you've seen in the previous slide nicely translate also on to the financial results.

And to begin with, maybe there is one more important disclaimer to share. The results that we've been looking at in terms of profit are those that have been adjusted, which means that they are purely business like results. Everybody that is with us here today go over our cyclical reports. Two weeks ago, we published one.

The decision of the Board having analyzed the market situation was to write off around PLN 800 million from the result. And the write-off resulted from the situation of the Russian company of the Russian investor who in 2022 took over the business after this investment, and we informed you about that in September. We talked about it at an extent, but the situation is dynamic and after new information that we described in the current report, we had to reevaluate the situation, and that is what it led to in terms of business decisions.

Just to remind you, the write-off is a noncash one. So it does not mean any cash outflows from the company. The situation of the company is really comfortable. And I believe that this is something that is reflected in the results we are presenting today. We have enough resources to develop to invest, including into logistic-related CapEx. And as we have commented, that is also, of course, stem from the current analysis of the situation, but we see no reasons to change anything in the dividend policy either. We simply keep on focusing on pure business and the results that you see presented in this slide and in the slides to come focus purely on business.

2025 is also an acceleration of our growth. And traditionally, we show you the status, 232 stores opened in Q3, nearly twofold acceleration, over 30, 32 stores in [ Sinsay ], Reserved, Cropp, House and Mohito and the third quarter, over 2,000 in Sinsay. In the third quarter, we complete with a network that altogether has nearly 3,500 stores.

Now moving on to the details of financial results. We are going to look at particular indices in greater detail, the comparable sales like-for-likes. This is what we started at the beginning with the 4.3% generated over the last quarter; in a broader context, 7.5% in third quarter of the last year. So the basis was high in the period that you can see presented in the slide that was the highest one. So the base was demanding. That is why we talk about 4.3% as something positive and something that we are actually happy about.

Now let's take the results and comparable like-for-likes, and we add new sales. Then we can see that in the third quarter, the increase in sales reached 22%, 22% offline and nearly 21% in e-commerce. But after the 9 months, the entire business grows by 20%. An additional piece of information is that there is an increase of foreign exchange rates that was minus 1% and 5%. So if we purify the results by that macro impact, it would be higher by 1.5 percentage points. That's our first leverage. The other one is gross profit margin.

After the last Q&A session that we had in September, during that session, we signaled that there is the mathematically logical potential for increasing the margin because the second half of the year is clearly better. We've contracted the collection at a more favorable exchange rate. And back then, we could already signal that. Now I'm happy that nothing went wrong, and we can see that everything went according to our plan, and we can report nice high margin.

And again, as was the case with like-for-likes on the scale that you can see here, the highest margin in the last period is to be seen. Zloty was very strong in recent years, and that's something that is also favorable. So sales, gross margin and the third leverage that is SG&A cost. And in this context, we are most happy about this particular leverage. Everything is in our hands.

At the end of last year, we commented that we are building the scale, the cost, the dynamics, they were higher. Some of the locations, logistical locations only opened themselves and they only learned how to be efficient. But starting with Q1 this year, the costs behave the way we wish them to. We are efficient in the so-called back office. We have mastered the development rules there. We know that the teams that we have are sufficiently efficient and we can grow with them.

But 2 greatest leverages standing behind the drop of cost is, of course, logistics and marketing apart from the offline stores, when we think about the broadly understood logics, this is the biggest group. And owing to our investments in this area, we can optimize the cost.

And then the other part is performance marketing. And here, giving you precise digits, we spent not even 8% in relation to the profit from the e-commerce channel compared to 9% last year. So this 1 percentage point is quite a leverage.

And all in all, when we put these 3 components together, what we get is a really nice dynamic in profit growth. We saw nice numbers at the beginning. We are very happy about those growth because probably at this point last year, there was a lot of uncertainty. Of course, we believe in our strategy that's well thought over. And now we are bearing fruits of the hard work that we carried out over the last months.

The increase in profitability of around 5% at the EBITDA or EBIT level. These are really great results in the third quarter. In terms of net profit, it's around 2.5%. But again, giving you a broader context, this year, we've accelerated with investments quite much.

We used the existing banking limits that we have quite extensively, put it again as informed towards the end of November, a big success of the entire organization and of the team involved in the project made it possible for us to close the complex refinancing structure for our debt so we can enjoy financial stability for the next 3 to 5 years, depending on the area of financing and ever since then, so ever since Q4 and in consecutive periods, those financial costs are going to be even more optimized.

So everything is heading in a really nice direction. And the 9 months with each quarter, we were kept accelerating, also show that when you look at the dynamics on average plus/minus 30% of increase at any level, reminding you that sales after 9 months grew by 20%, then automatically, that translates into the increases in profitability at any level.

Now we can smoothly go to the operational indices inventory. The image is really great. The last bar that you can see is below the second quarter, particularly the line that shows you the value of our inventory per square meter. It dropped quite significantly. Here during the first half of the year, where we entered the first half with higher inventory levels, you might remember that in June, we reduced our guidance.

With this stock, we've been working pretty actively. What was supposed to delay was delayed in terms of supplies and then we lowered the purchase budgets for consecutive periods in order to make some space for this inventory. So this is the result that we got to.

We still have some more goods coming before the end of the year. But I don't think that we will get anywhere near 2,000. I remember what I said in September when we commented on behalf of the company. Still in the first quarter, maybe in the first half, we'll be working in this inventory that we are shifting from those periods. You can see, especially in the Sinsay brand, this margin was under slight pressure. But we can see looking at Q3 that in terms of business challenge, we can really generate nice results.

Inventories, of course, are related to the working capital. This is quite borrowing slide. We've been able for some time now to generate a negative level and new financing gives us additionally more comfort in terms of reverse factoring investing. So yet another area, as Warren Buffett said, banking should be like that. And we are happy to have this boring comfort, so to speak.

Now in terms of logistics, it is marked by high CapEx. Our CapEx is foreseeable on the blue bars looking from -- looking bottom up. These are expenditure for stores. So just to remind you, EUR 450 per square meter in Sinsay brand and EUR 800 in other brands is the average.

And in terms of logistics, this is the medium part. This is the area that we sped up on already last year, over PLN 1 billion spent this year, but we will see on the slides that still next year, we'll be spending. We are spending a lot, but less than this year is going to be spent. But as we saw in the OpEx part, these are high-quality investments, and they really allow us to generate nice savings this operational level.

And what makes us happy is that our growth is dynamic and fast, but all that is carried out with safe debt level. The first and second quarter, slightly high, but then 1.3 debt to EBITDA that was really comfortable, now it's 1.1. So the situation is really safe. And I guess that the commentary is not really necessary here. So that was the summary of the third quarter and the 9 months, but it is December already, so in Q4.

We can now observe what is happening on the market. So over to Magda.

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