CCC Group’s performance in Q3 2022: strong revenue growth, solid profitability of HalfPrice, launch of the Modivo marketplace and liquidity buffer building in response to challenges of the business environment.
In the third quarter of the financial year 2022 (August–October), the CCC Group posted its highest ever quarterly sales of close to PLN 2.4bn (up 18% year on year) on a high base of last year. Just over a year on from the format’s inception, HalfPrice achieved operating profitability with a solid EBITDA margin of 12.6%. Strong, double-digit EBITDA margin (of 11.8%) was also posted by the CCC segment. October saw the launch of the MODIVO marketplace, one of the key strategic investments whereby the Group is able to roll out a model accounting for 65% of global e-commerce sales. In parallel, the Company took a series of measures to build capital reserves amid a turbulent macroeconomic environment.
In the third quarter of 2022, the CCC Group generated revenue of PLN 2.4bn, an over 18% year-on-year growth achieved despite a high base of last year (+28%). The contribution of the online channel was 51.7%, up 4.3pp year on year.
‘2022 has been an extremely challenging year for all retailers. The outbreak of the war in Ukraine and its macroeconomic impacts have changed the rules of the game. Customers’ incomes remain under the pressure of rising inflation and high interest rates, leading to heightened consumer price sensitivity. At the CCC Group, we have proactively responded to these developments. We have added several new budget brands to the CCC portfolio, significantly expanding their share in our total mix. We are actively managing prices, making sure they remain attractive to all customer categories. This brings us closer to consumers, enabling us to better respond to their needs and expand our market share despite the challenging business environment,’ said Marcin Czyczerski, President of the Management Board of the CCC Group.
In the third quarter of 2022, the CCC Group reported a gross margin of PLN 1.2bn (up 15% year on year). The Company posted  PLN 197m in EBITDA, with an EBITDA margin of 8.1%.
‘Turbulent times call for proactive measures. Therefore, in the third quarter we mapped out a series of actions to be implemented over the next 12 months to build the Group’s resilience. Among other things, our plan provides for over PLN 300m in cost savings, further work on cash conversion, rightsizing of capital expenditures, and raising of external funding. Also, we want to repay a large portion of our financial debt to strengthen our balance sheet and reduce debt service costs. These and other measures will help us to create a financial cushion for the organisation, which is essential these days,’ added Mr Czyczerski.
CCC’s sales remained broadly unchanged year on year, at PLN 1.1bn. It is important to note that the segment’s offline channel generated its revenue despite a 1% year-on-year decrease in retail space, reflecting the continued network optimisation effort. Furthermore, ccc.eu’s online sales grew by as much as 61% year on year in the third quarter of 2022, accounting already for 19.5% of the business line’s total sales (up 7.2pp year on year). CCC is successfully building an omnichannel sales model. It maintained a stable year-on-year gross margin despite high inflation across the supply chain and overstocking at most competitors. The business line reduced its cost base by PLN 8m, and the segment’s result was significantly affected by one-off items, mainly foreign exchange differences. CCC delivered a strong EBITDA margin of around 11.8%. Also worthy of note is a year-on-year reduction in inventories by 2% in value terms and by 17% in volume terms, which had a positive effect on inventory turnover (44 days less year to date), lower funds invested in working capital and, consequently, improved operating cash flow.
HalfPrice reported a more than threefold year-on-year increase in revenue in the third quarter of 2022 (PLN 258m) and a quarter-on-quarter increase of 42%. With eight new stores opened this past quarter, the HalfPrice network has already expanded to 84 outlets in seven countries. Just a year and a half from its inception, the business line delivered operating profitability, with a solid EBITDA margin of 12.6%. A big contributor to HalfPrice’s solid performance was a rising ratio of sales per square metre at like-for-like stores, up as much as 25% year on year. A broad product mix, enhanced marketing communication and rapidly growing brand recognition helped to boost footfall, which in turn drove up sales.
‘We are pleased to have achieved operating profitability in just over a year since our format was brought to the market. This success has been driven by synergies with the CCC Group – from access to shared technological and logistic capacities, to being financed through cash flows generated at CCC. We will keep developing our business under this very model, delivering further growth. Starting from the third quarter of this financial year, the HalfPrice contribution to the Group’s earnings and overall cash position has been positive. We already have plans to roll out the concept to another foreign market, Latvia, in early 2023,’ said Adam Holewa, President of the Management Board of HalfPrice.
In the third quarter of 2022 the Modivo Group recorded nearly PLN 1.0bn in revenue, a year-on-year increase of about 23%. eobuwie.pl’s sales grew by about 11% year on year, reaching PLN 779m in the third quarter of this financial year. Revenue of the MODIVO business line rose by about 89% year on year, to PLN 229m.
‘The Modivo Group is growing at a rate faster than its whole market on the back of product range expansion and technology improvements. However, the pricing competition in the market is getting stiffer, which is reflected in sales growth trends, gross margin level and customer acquisition costs. Factors weighing down on the sector have also to do with the macroeconomic climate, putting a strain on the purchasing power of consumers. Therefore, we are working steadily to enhance out cost efficiency and, as a parallel effort, we launched the marketplace platform on October 12th. The platform will allow Modivo to retain its strong growth momentum, without costly expansion of the logistics base or the need to scale up stocks. The invited partner merchants gain access to Modivo’s customer base by committing to maintain uniform service standards. What Modivo gains in return is the ability to substantially expand its product range – thanks to the marketplace, our offering will have increased by as many as 50 thousand items by the end of this year alone – not only in clothing and footwear, but also in the new categories of home&decor and health&beauty,’ said Damian Zapłata, President of the Management Board of the Modivo Group.
In the third quarter of 2022, the Group faced strong pricing competition pressures triggered by deteriorating consumer sentiment, as many market players resorted to price discounts. In the face of these challenges, the Group took proactive measures to boost its revenue and gain more market share. The need to revise its policy of price discounts and promotional offers to address the challenging market conditions translated into the Modivo Group’s gross margin of 40.3% for the third quarter of 2022 (-2.4pp year on year).
An increase in the Modivo Group’s costs in the quarter under review (selling, general and administrative (SG&A) expenses: PLN 409m) followed mainly from the implementation of strategic growth plans, including launch of the marketplace platform and deployment of new mobile apps (whose respective contributions to eobuwie.pl’s and MODIVO’s sales in September came to 15% and 32%, and are growing at pace). At the same time, variable costs remained broadly stable.
The Modivo Group postedPLN 15m in EBITDA, with an EBITDA margin of 1.5%.