E-COMMERCE AS PREDOMINANT SALES CHANNEL DURING COVID-19 CRISIS. PHASED REOPENING OF BRICK-AND-MORTAR STORES, WHICH ARE SET TO REMAIN MAJOR CONTRIBUTOR TO OMNICHANNEL SALES. CCC RELEASES ITS Q1 2020 RESULTS
The CCC Group, leader of Central and Eastern Europe’s footwear sector, has issued its consolidated report for Q1 2020. For January−March 2020, the Group posted revenue of PLN 965m (down 7% year on year) and EBITDA loss of PLN 125m. Following the coronavirus outbreak and forced closure of stores, the Group has focused its sales efforts on e-commerce, seeing online sales growth of 43% and 58%, respectively, in the first quarter and in April 2020. At the same time, the Company has begun to relaunch sales through the brick-and mortar channel, set to remain a vital component of its unique omnichannel ecosystem.
As soon as its stores were closed down, the CCC Management Board drew up a plan to stabilise the Group’s operations, entered into talks with banks, financing institutions and bondholders, prepared a share issue plan and took steps to avail itself of the ‘anti-crisis shield 1.0’ and further aid schemes available in Poland and abroad.
In April 2020, the Company and its shareholders (by way of resolutions passed by the Extraordinary General Meeting on April 17th 2020) decided to issue up to 13,700,000 shares, from which the Company expects to raise some PLN 400m-500m to stock up its stores ahead the upcoming season and to support its day-to-day operations. Sources of funds for the Group have also been secured through the discussions with banks, financing institutions and bondholders. CCC has also received state subsidies towards employment costs totalling PLN 26m, managed to bring down its operating expenses and is negotiating the lease terms for its premises. It has also applied for financing from the BGK Liquidity Guarantee Fund.
“The new reality will certainly put a number of businesses through their paces, as everything needs to be adapted to the environment reshaped by the pandemic. Any agreement or arrangement made before the crisis needs to be reviewed. We won’t shy away from difficult decisions or settle for compromises when our Company’s future is at stake. We are braced, both operationally and mentally, for the new reality. This is not the first serious crisis experienced by CCC, but we have always emerged from them stronger, with important lessons learnt under our belt. The same will be the case this time,” says Dariusz Miłek, Chairman of the Supervisory Board and founder of CCC.
Weighing heavily on the Q1 2020 performance were the results recorded in March, when brick-and-mortar locations were closed down and all sales were made online. As a consequence, consolidated gross profit fell 16%, to PLN 413m, and consolidated gross margin deteriorated 4.6pp, to 42.8%, due mainly to the Group’s inability to effectively sell its spring-summer collection at ‘first’ prices in March, being the key month of the quarter. The Group’s expenses amounted to PLN 710m, relative to PLN 638m a year earlier (up 11% year on year), not yet reflecting a number of measures undertaken by the Company in recent weeks to cut down costs in the short and long term. For the first quarter, the Group booked negative EBIT and net loss of PLN 310m and PLN 354m, respectively.
“The ongoing crisis will be a catalyst of changes within CCC, expected to yield future benefits and, I believe, bolster our market position in the long run. Within a little more than a month, we have made a huge effort to maintain a sound financial condition going forward and to preserve jobs. Thanks to the cost-cutting measures, extension of payment deadlines and state aid we have received, we are well placed to run our business after the lockdown is lifted. A number of countries where CCC is present, including Austria, the Czech Republic, Switzerland and also Poland, have already begun to ease some economic restrictions. Today (as at April 24th), we have already reopened 123 stores in Poland. Next week, we will reopen some of our retail outlets in the Czech Republic and immediately after the May holidays – all our locations in Austria. Our offering caters to those seeking the best value for money, which is extremely important in the current situation, as consumers will be increasingly sensitive to that aspect. We are fully stocked up on the SS20 collection, and are optimising the autumn-winter range, coming next in line, to align it with the new realities and customer needs. We are now talking with suppliers to reduce autumn collection orders by some 10%-15% and to amend payment terms,” says Marcin Czyczerski, President of the Management Board of CCC S.A.
“As the entire volume of our sales shifted online, we decided to accelerate the set-up of several e-commerce platforms on foreign markets, including CCC in Romania, Hungary and Austria, which were launched in April. We are also planning to roll out our mobile applications on further markets and deploy e-commerce channels on four foreign markets of our vigorously growing DeeZee brand (Hungary, the Czech Republic, Slovakia and Romania). However, we believe shopping centres will remain a robust retail channel. As a player active in both channels, we can see online is increasingly more expensive, while retail is set to become cheaper than it was before the crisis, especially under the new lease terms. The more e-commerce players, the stiffer the competition and the higher marketing costs. However, the key competitive advantage lies invariably in the product. We have strong brands, including Gino Rossi, Lasocki, Sprandi, Jenny Fairy, and DeeZee. We operate two large shoe factories in Poland and enjoy an approximately 30% share in footwear sales on the home market (CEE: 20%). Our turnover has been rising for the past 15 years, with sales expected to reach over 60 million pairs of shoes this year. We know how to operate on a large scale and we want to keep doing just that. During the lockdown, we have been forging and fostering customer relationships, running marketing campaigns to provide entertainment and make this time of social isolation more fun. This will surely pay off,” says Karol Półtorak, Vice President for Strategy at CCC S.A.
“E-commerce is our natural habitat where we thrive, which is a great source of competitive advantage these days. We have recorded large order volumes and are winning new customers, although the market downturn is squeezing slightly our profit margins and prompting us to extend promotion periods. We operate on 15 markets across Europe, with first-quarter sales at a solid level of PLN 389m. Our shares in new markets are expanding. A major challenge we have successfully tackled was to ensure the safety of our employees and customers following the coronavirus outbreak,” says Marcin Grzymkowski, the CEO of eobuwie.pl S.A.
Efficient logistics is essential if an e-commerce business is to prosper. In the first quarter of 2020, CCC completed the first phase of a project to build a modern logistics centre in Zielona Góra. The facility is expected to handle 100% of the Group’s e-commerce operations. With an area of close to 40,000 square metres and three storage levels, the logistics centre has significantly increased the Group’s order processing capacity, and will ultimately hold a stock of up to 5.5 million products.
“We intend to benefit from any further state aid schemes available to us. We have a positive view of both the ‘anti-crisis shield 1.0’ scheme and the ‘financial shield’ scheme, which is the responsibility of the Polish Development Fund. A fast-track legislative procedure is essential, as help is needed here and now. In parallel, we are monitoring all our business segments, particularly those that have not yet reached the break-even point. We have started a review of strategic options for our Swiss operations Karl Voegele AG to analyse the feasibility of a restructuring programme based on a business model assuming a major reduction in the number of stores and/or possible divestment of assets or acquisition of a new investor for the company. We are determined to emerge stronger from the COVID-19 crisis, with a leaner cost structure, perfected product offering and even stronger e-commerce business,” explains Marcin Czyczerski, President of the Management Board of CCC S.A.
As at the end of the first quarter of 2020, CCC’s total retail area was 754,000 square metres, having decreased by 6,000 square metres from the year’s beginning, in line with a strategy to optimise Gino Rossi’s retail space in Poland and Voegele’s retail space in Switzerland. The fastest growth in retail space was recorded for eobuwie stores (with a year-on-year addition of 12 omnichannel locations). In the face of uncertainties sparked by the coronavirus pandemic, the Company wants to significantly scale down its new store opening plan for the rest of the year.
At the end of March 2020, the CCC Group was present in 29 countries. In 23 of them we operated more than 1,200 traditional stores, and had an online presence in 15 countries. The Group operates a total of over 50 online platforms across Europe, including eobuwie.pl, ccc.eu, MODIVO, DeeZee, and Gino Rossi. Over 52 million pairs of shoes were purchased by CCC customers via all sales channels in 2019.
This communication is not intended for distribution in the United States of America, Australia, Canada, South Africa or Japan. Neither this communication nor any information contained herein constitutes an offer to sell or an invitation to buy any securities in the United States of America, Australia, Canada, South Africa or Japan, or any other jurisdiction where such an offer or invitation would be unlawful.
The shares referred to in this communication have not been and will not be registered under the United States Securities Act 1933, as amended (the “U. S. Securities Act”) and may not be offered or sold in the United States of America, except pursuant to a permitted exemption from the registration requirements under the U. S. Securities Act.