Baltika Group ended the third quarter with a loss of 814 thousand euros. The result for the same period last year was a loss of 471 thousand euros.
In the third quarter Group’s revenue decreased 8% compared to same period last year and was 11,026 thousand euros. The biggest sales segment – retail revenue was 9,404 thousand euros, remaining at the level of same period last year. The reason for the decline of Group’s revenue in the third quarter was decrease in wholesale and franchise sale by nearly million euros.
Wholesale and franchise revenue was 1,212 thousand euros in the third quarter, decreasing 45% compared to year before. The main reasons for the decline in sales are difficult economic situation in Ukraine and decreased purchase power of local population; and the rearrangement of the company's current wholesale model, which is no longer working in today's fashion sector, according to the Group's 2022 Strategy. Negative impact of the rearrangement of the export strategy on the financial results has been expected, yet the decline in sales volumes has been faster than planned. The biggest decline in sales volume is attributable to the amendment of cooperation agreement with Peek & Cloppenburg, one of the leading department store chain in Germany and Central Europe, according to which Monton collections are no longer sold in most department stores in Germany. Changes were made in accordance with reseller’s new strategy and selection of brands offered in department store chain’s home market. Baltika will continue co-operation with the partner in Peek & Cloppenburg’s department stores located in Central and Eastern European region, where five new sales areas will be added this year-end, which renewed concession based cooperation model is in compliance with the Baltika’s 2022 Strategy and allowing more active joint operation and merchandising management. In third quarter, three new selling points were opened on retail spaces belonging to the partner Montecristo SL, in Slovenia and Croatia. Preparations are in order to open two more sales areas in Novi-Sad Serbia in the fourth quarter. At the end of the third quarter there were 27 franchise stores representing Baltika’s brands, forming 22% of the total stores portfolio. In nine months, wholesale and franchise revenue decreased 31% and amounted to 3,748 thousand euros.
In retail, compared to previous years, this year’s third quarter was characterised by significant growth of sales in light-weight products like dresses, blouses, skirts. At the same time, outerwear and knitwear, which are traditional for autumn season, formed an unusually low volume of sales. Due to the change in the overall fashion trend, the sale of formal clothing has also decreased. The postponement of the sale of autumn-winter clothes led to a third-quarter retail sales volume remaining at the last year's level.
Baltika Group’s e-store Andmorefashion.com revenue increased 20% in the third quarter compared to same period last year and was 386 thousand euros. Gross profit margin improved by 3.8 percentage points in the third quarter and gross profit increased 34%. Gross profit growth was attributable to better inventory management, due to which the offering of the discounted products in e store was more modest than last year. Monton formed 35% of the quarter sales, followed by Mosaic with 28%. Compared to the third quarter last year, sales increased in Estonia 26%, in Latvia 19%, in Lithuania 18%. Nine months in total, e-store sales increased 19% and revenue totalled 1,235 thousand euros.
The company’s gross profit margin in the third quarter was 45.6% that is 1.6 percentage points higher than the margin in the third quarter last year. As the result of collections’ good sell-through of in the first half-year, the inventory level of the previous seasons had smaller share and full-priced new season goods were sold more. The gross profit for the quarter was 5,033 thousand euros, decreasing 5% compared to the third quarter last year (IIIQ 2017: 5,284 thousand euros). Nine months in total, company’s gross profit amounted to 15,948 thousand euros (9 months 2017: 16,548 thousand euros).
In the third quarter, Group’s distribution expenses increased by 2% that is mainly related to growth of rent expenses of retail sales area and entering Finnish market. Administrative expenses increased 6%, in third quarter; but nine months in total, the expenses decreased 5%. Due to lower sales volume, distribution and general expense ratio to revenue increased by 5.5 percentage points to 52.1%, in the third quarter.
In nine months, Baltika’s revenue decreased 6%, compared to same period last year. E-store showed revenue growth 19%, retail revenue decreased 2% and wholesale and franchise sales decreased 31%. Company ended nine months with a loss of 1,669 thousand euros, the comparative result from previous year was a loss of 862 thousand euros. The main reasons of the nine months’ weak result were the decrease in wholesale and franchise sales in the second and third quarter and increased distribution expenses due to entering Finnish retail market.
Highlights of the period until the date of release of this quarterly report
- In August meeting, the Supervisory Board of AS Baltika extended the contract of the member of the Management Board Meelis Milder for another 3-year term. The Management Board will continue with two members: Meelis Milder and Maigi Pärnik-Pernik.
- In august, the Supervisory Board of AS Baltika approved the specified action plan for ‘Strategy 2022’ implementation. The plan comprises 16 projects, of which the most important focus on three areas: internationalization, digitalization and customer centricity.
- Baltika’s strategy implementation, focusing on three key themes (customer focus, international growth and digitalization), is progressing according to expectation. Portfolio of projects has been set up, which will ensure strategy realization throughout the business model. The projects are monitored and controlled regularly, incl. steering group meetings, business cases and common knowledge sharing. Most projects have already been started and are currently in analysis/design phase. Some of the biggest achievements so far are within the fields of: customer experience management; merchandising (implementing an artificial intelligence solution) and product development (piloting a 3D design).
- In the third quarter, two franchise stores were closed – one in Ukraine and one in Russia.
Consolidated statement of financial position
| 30 Sept 2018 | 31 Dec 2017 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 554 | 704 |
| Trade and other receivables | 3,633 | 2,055 |
| Inventories | 11,251 | 10,499 |
| Total current assets | 15,438 | 13,258 |
| Non-current assets | ||
| Deferred income tax asset | 189 | 189 |
| Other non-current assets | 448 | 487 |
| Property, plant and equipment | 1,963 | 2,395 |
| Intangible assets | 1,490 | 1,513 |
| Total non-current assets | 4,090 | 4,584 |
| TOTAL ASSETS | 19,528 | 17,842 |
| LIABILITIES AND EQUITY | ||
| Current liabilities | ||
| Borrowings | 8,583 | 1,309 |
| Trade and other payables | 6,077 | 5,984 |
| Total current liabilities | 14,660 | 7,293 |
| Non-current liabilities | ||
| Borrowings | 1,351 | 5,363 |
| Total non-current liabilities | 1,351 | 5,363 |
| TOTAL LIABILITIES | 16,011 | 12,656 |
| EQUITY | ||
| Share capital at par value | 4,079 | 8,159 |
| Share premium | 0 | 496 |
| Reserves | 1,107 | 1,345 |
| Retained earnings | 0 | -4,872 |
| Net profit (loss) for the period | -1,669 | 58 |
| TOTAL EQUITY | 3,517 | 5,186 |
| TOTAL LIABILITIES AND EQUITY | 19,528 | 17,842 |
Consolidated statement of profit and loss and comprehensive income
| 3Q 2018 | 3Q 2017 | 9M 2018 | 9M 2017 | |
| Revenue | 11,026 | 12,001 | 32,410 | 34,490 |
| Cost of goods sold | -5,993 | -6,717 | -16,462 | -17,942 |
| Gross profit | 5,033 | 5,284 | 15,948 | 16,548 |
| Distribution costs | -5,168 | -5,053 | -15,504 | -15,205 |
| Administrative and general expenses | -572 | -541 | -1,733 | -1,820 |
| Other operating income (-expense) | 37 | -43 | 24 | -23 |
| Operating loss | -670 | -353 | -1,265 | -500 |
| Finance costs | -144 | -118 | -404 | -362 |
| Loss before income tax | -814 | -471 | -1,669 | -862 |
| Income tax expense | 0 | 0 | 0 | 0 |
| Net loss for the period | -814 | -471 | -1,669 | -862 |
| Total comprehensive loss for the period | -814 | -471 | -1,669 | -862 |
| Basic earnings per share from net loss for the period, EUR | -0.02 | -0.01 | -0.04 | -0.02 |
| Diluted earnings per share from net loss for the period, EUR | -0.02 | -0.01 | -0.04 | -0.02 |
Maigi Pärnik-Pernik
Member of the Management Board
maigi.parnik@baltikagroup.com
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