VRG regains vigour in the clothing segment

Positive trends in sales are generating good results for the Group

Kraków, 26 August 2021. In the first half of 2021, the clothing and jewellery company VRG Group generated a positive operating result and a net profit of PLN 2.8 million (with a loss of PLN 31.8 million in 2020). The good results are mainly due to positive trends in sales and the margin in May and June. They have translated into a strong second quarter for the Group. The stores of VRG’s clothing brands recorded an increase in demand for the formal collection, which resulted in a significant improvement of the margin. The W.KRUK brand recorded a great second quarter, with revenues in that period reaching over PLN 100 million. In July and August, the Group continued to record high, double-digit sales growths y/y.

The VRG Group closed the first half of 2021 with sales at PLN 416.1 million (almost 12% up from the previous year), despite a significantly smaller number of trading days for the brick & mortar network in that period (46 lockdown days in 1H 2020 and 76 days in 1H 2021, including Sundays). The margin was at 51.1% in the first half of this year, almost 4 pp higher than in the same period last year.

Andrzej Jaworski, President of the Management Board of VRG, believes that the Group has made good use of the moment when customers returned to stores and the demand for clothing revived, in particular in the formal segment. “VRG management board’s main job over the past five quarters was to stabilise the company’s operations. This can be compared to the challenge of piloting a plane with one engine – the clothing segment in our case – stalling from time to time. Today, as both engines are working properly, we can say we have started to ascend. We are seeing growth in both segments and are approaching a sales structure that’s more desirable for the Group” comments Jaworski.

A strong rebound in the clothing segment

VRG saw positive sales dynamics, primarily for its formal collections. At the same time, the Group managed to keep sales of the casual range at a good level, as customers grew accustomed to its presence in the offer during the pandemic.

Radosław Jakociuk, Vice President of the Management Board of VRG responsible for operations and brand divisions emphasizes that W.KRUK sales are not losing momentum. The jewellery brand generated a retail revenue of 102.8 million in the second quarter, significantly exceeding the result from the same period in 2020.

“The jewellery segment has repeatedly proven its resilience to the pandemic, quarter after quarter. W.KRUK also saw positive trends in the first half of this year. Especially the second quarter inspires great optimism about the remainder of the year. The company made a sales result comparable to that achieved in the 3Q and 4Q 2020 – normally the best periods for the company’s sales. The demand, generated primarily by the off-line channel, applies to all major segments of the offering: jewellery – both gold and silver, as well as watches” stresses Jakociuk.

Consistent change of network structure

At the end of 1H 2021, the VRG Group operated on a total area of 52,400 m2, with the number of stores lower by 10 compared to the same period of 2020.

“New openings concerned mainly franchise outlets. The number of Vistula and W.Kruk stores grew the most. Our jewellery brand now has the second biggest store network within the Group, after Vistula” comments Radosław Jakociuk. Overall, 14 new stores operating in that model were added across the Group. VRG closed most stores in Wólczanka’s network. In line with the brand’s current strategy, small outlets are being shut down towards developing the online channel and a new concept of stores with a bigger floor area. The Bytom brand’s network shrank by four outlets, and the Deni Cler network remained at a stable level.

Michał Zimnicki, Vice President of the Management Board and CFO of VRG, emphasizes that in 2021 the company plans to further reorganise its store network with profitability in mind. “The positive impact on EBIT of the change in Wólczanka store structure confirms our belief that this is a good strategy for the entire chain,” he says.

As traffic in brick-and-mortar stores revived, the internet channel’s share in sales was lower than in the previous year. It reached 24.1% at the end of the first half of the year, which is in line with how the company expected the channel to grow in the current year. The target for the end of 2021 is a 20% share of the online channel in total sales.

“The return of customers to brick-and-mortar stores had to result in a decline in online sales in the first weeks after May 4th. However, we were pleased to see our e-store stales stabilise and gradually return to positive dynamics already in the summer. This shows that we can effectively build demand in all of our channels, following our omni-channel strategy” stresses Radosław Jakociuk.

VRG Group is ready for the next season

Michał Zimnicki believes that the company is on track to achieve its goals for 2021: grow revenues y/y both off-line and on-line, increase gross margin y/y and, as a consequence, achieve significantly better financial results compared to 2020.

“The results for the first half of the year show that we are consistently approaching our goals, supported by the recovery of demand. We are still aware of the risks posed by the unfolding epidemic situation, so we continue to closely monitor cost effectiveness and liquidity safety.

For the time being, we are not expecting further lockdowns of the brick & mortar network” emphasizes Michał Zimnicki. VRG’s CFO abides by the Group's investment plans. This year, VRG is to spend approx. PLN 28 million on the development of online store infrastructure and the brick-and-mortar network.

As stressed by Radosław Jakociuk, the VRG Group is well prepared for the next season. For VRG, the third and fourth quarters are marked primarily by new arrivals from Vistula (the first complete women’s collection with a new branding as Vistula Woman line), a new collection from BYTOM in the spirit of “retro future”, a casual “total look” range added to Wólczanka’s collection, special collections from W.KRUK (including a new ambassador collection) and celebrations of Deni Cler’s 30th anniversary on the Polish market.

At the end of the first half of the year, the company made write-downs (including on inventories and a decrease in the value of real estate) for a total amount of PLN 11.3 million.