GDANSK (Reuters) – Poland’s biggest fashion retailer LPP faces a surplus of merchandise this year after closing stores in Eastern Europe, which is likely to erode its profits in the first half and squeeze profit margins in 2022, Chief Financial Officer Przemyslaw Lutkiewicz told a news briefing on Thursday.
“We were preparing for a completely different year, counting on operations on Eastern markets and that our sales would exceed 20 billion zlotys ($4.70 billion)”, Lutkiewicz said. “This surplus is due to the fact that we do not have sales on the eastern markets.”
Instead, the company now expects revenue in its year through Jan. 31, 2023, of 16 billion zlotys, after Russia’s invasion of Ukraine in February compelled it to close its stores in both those countries.
Lutkiewicz said excess inventory would make for a challenging first half. The company will sell its spring stock in the autumn and sell the rest to Poland and the “countries where we are currently operating”, he said.
For the second half of the year, the company has slashed its merchandise orders by 25-30% to account for fewer stores after the closures.
The company said, however, that it saw no supply chain issues despite pandemic-related restrictions in China.
LPP expects a decrease in operating margin in 2022, and plans capital expenditure during the year of 1 billion zlotys, compared to 1.33 billion zlotys a year earlier.
The company plans to expand its presence in the European Union in 2022.
LPP said the first quarter looked good despite difficulties related to the war in Ukraine.
Lutkiewicz said the company saw “good sales in March and April. 30-40% increase in sales year on year.”
For the year through Jan. 31, the company earned a net profit of 953.5 million zlotys on revenue of 14.03 billion zlotys.
($1 = 4.2549 zlotys)
(Reporting by Adrianna Ebert; Editing by Bernadette Baum)