CCC SA

WSE:CCC

Earnings Call Transcript 2019-Q4

[Marcin Czyczerski, executive]

Ladies and gentlemen, we'd like to welcome you very cordially. I think people will still be struggling in, but we want to be disciplined about the time. We want to go ahead and get started. We have a large number of meetings.

We saw each other less than a month ago when we presented the strategy under the title GO.22. So that presentation has a slightly different sense from the one that we're going to have today. This is based on Q4 results, a little bit of a summary, recap of last year, and we'll look at the prospects the company has for upcoming quarters.

I would ask for the presentation to be turned on at this time on the board behind me because it's not on yet. Okay. The presentation is now on the board. This is CCC presentation. We've indicated in our strategy that we want to move the fulcrum towards e-commerce. And one thing that's quite characteristic of CCC, we want to combine these 2 worlds. And during this earnings conference, we want to show you how we've been able to blend these 2 worlds and if we're in line with the strategy that we have articulated.

So I would like to show some of the key events -- key drivers. We'll show you the results and what awaits us. So you can see we've got the green and the orange world, and this is linked to the numbers. We're a retail company so the figures are very important. What's critical here -- and this is linked to sales performance. We have several different pictures.

So we can see that the group's revenues are up 7%, so this is significantly below our expectations. But if we look at the growth of e-commerce, where we have this at the top of the priority list, and so things look quite a bit better. E-commerce is already quite sizable. So we had more than PLN 1.4 billion. It continues to grow at some 40%, and so we're very pleased with this pace of growth.

We believe that the future is linked to a blending of retail with e-commerce. And so as a result, online share is growing. We're pleased that we've been able to improve our margins both in retail and online. It seems to be flat, but you can see that the gross margin has grown in every single channel.

The most important thing is that our working capital -- this is rotation -- turnover ratios. And so we can say that we have the smallest level of working capital inventory for the recent 10 years. We weren't able to really go much further back when measured against square meters of space. So we have a low level of inventory per square meter of space. And we can tell you a little bit more about the quality of the inventory. And then we have financing of the gap in the company's operations, where we're providing financing to suppliers and extending the turnover of liabilities.

We believe in market consolidation. At the end of the day, the largest and the strongest players will remain, and we're the strongest and the biggest in Central and Eastern Europe. We're present in some 29 countries. We've got an increase of 117 stores, I'm not going to discuss that, and we have 100,000 square meters of new space. So we're quite strong in e-commerce, and we're quite strong in retail, brick-and-mortar.

And some of the key events in Q4. And here, you can see that we're moving in the direction of e-commerce. So these key events were linked to e-commerce or to omnichannel solutions. So we had the rollout of eobuwie showrooms. We've got 22 today. We're very pleased with all of them. We believe that by the end of the year, we'll have 30. The first one will be abroad, in Prague, in one of the best shopping galleries. And so it really showed the way forward to the other divisions of the company.

Then we have the launch of a new warehouse for eobuwie, and then we had the rollout of esize.me. And we can see the additional orders that are coming in through the e-commerce unit as a result of having esize.me. And so we're very pleased that the omnichannel is really starting to work. And so I would add that in Slovakia and in Czech and in Romania, these are some of the most important countries for e-commerce with the highest growth rate.

Then if we think about the financial results for Q4 and the full year. So for the full year, we had nearly PLN 6 billion, so PLN 5.84 billion in revenues, up nearly 24%. Q4 was up some 7%. And if you look at the full year result, we're not happy. If we can -- the result of Q4 is not something that makes us satisfied. But if we look at it on a year-on-year basis, it looks better. So if you look at operating profit, our EBITDA, our net profit, the results year-on-year are fairly comparable. And I'll develop on the various components in just a moment.

If we look at space, here, we have a very interesting phenomenon. So we had a record amount of new stores opened as well as closing stores. Some retailers are taking advantage of their opportunities but, at the same time, making good assessments of their retail space, and so we've closed space as well.

You were disquieted about whether or not we've grown too fast in Poland, and so we have 33,000 square meters in Poland. But if you look at the composition of this growth, you can see that this is growth through eobuwie, the acquisition of Gino Rossi, and then we've only got 11,000 new square meters of classic growth.

So we have Romania, which has been added. This is a very important market which is -- we call it the second Poland. This is a country that has a similar growth trajectory, and we believe that it will have the proper place in the group in the near future.

So if we look at our like-for-like sales, you can see that it doesn't look too good. So we didn't have the weather impulse, which is quite critical for us. We didn't have a genuine winter, so in November and December, we didn't get that impulse for winter sales. We're not -- we've not been able to utilize micro seasons like Black Friday and some of the collections we have within a quarter to generate sales impulses other than weather-related. This is changing. We can change the picture of the quarter but we're working on making this better.

What we're pleased by is what's happened in e-commerce and eobuwie. Even though the scale is quite big, eobuwie continues to grow quite rapidly. We also have MODIVO as well as some of the other elements of e-commerce. We have tens of platforms. And they're starting to grow because we've seeded them, and they're starting to appear on this graph. And so the additional colors that we're adding, especially like MODIVO, will occupy a bigger and bigger chunk of the bar graph.

And so the outcome of e-commerce, that's, of course, one of the things that comes from that, is that e-commerce represents 27% of total sales. So on the right side, you can see what were the drivers and how revenue has changed. This is primarily because of what's happened in e-commerce. What moved downwards? That's like-for-like sales, and this is something that we've addressed in our strategy GO.22. And so we want to return -- revisit the levels we had in the past.

A few words about eobuwie and the composition of growth. So it's growing across the board in all segments, so in Western Europe and Southern Europe. If we look at the individual countries, we see Italy, Lithuania and Romania having the most pronounced growth. eobuwie in Romania, Bulgaria and Greece is the largest e-commerce player. In Romania, it's the unchallenged leader. So we can say that in Romania and Bulgaria, we have more than 50% of e-commerce there.

eobuwie is not just growth, but we also have qualitative growth. We had some problems in Q2, but we addressed those problems. And starting from April, May and each one of the subsequent quarters, we've been able to improve the profitability. We had 80% profitability ratio, and we're growing that. So we've improved that by nearly 1 percentage point, and we've moved it from PLN 22 million to some PLN 40-some-odd million.

What we're pleased with is the margin, and so the costs of eobuwie are under greater control than we had previously. So if you look at the -- so you can see that also in Q4. But if you look at the structure of the gross margin, you can see that it's grown in brick-and-mortar by 0.8%, and it grew in e-commerce. And so the mix has changed with a slightly smaller gross margin. So in total, our gross margin is a little bit lower, but it's -- more or less, the overall impact is basically flat if you think about the changing inputs.

Here, we have a slightly different way of analyzing the costs here. I hope that you will embrace this because this response to your expectations in terms of how costs and the group are growing and the breakdown into e-commerce and retail. So we've got some PLN 700 million in costs so -- compared to Q4 2018. So we had an additional PLN 27 million [indiscernible]. So you can see that we have very important performance for other costs. Marketing, transport, they grew a little bit. Retail costs grew by some PLN 27 million, that's 5%, while space expanded by 12%. So you can expect that the cost per square meter showed positive performance.

If you look at marketing across the various segments -- if we look at e-commerce costs across the various brands. So eobuwie, CCC, Vogele and DeeZee, they grew by PLN 41 million. But at the same time, e-commerce grew by some 40%. So we can see there's a high amount of quality in terms of this profitability.

And if you look at overheads, we're more or less flat, but there's a positive one-off linked to the reversal of the management incentive program because you know that the program we had for the years 2017-2019 wasn't achieved. So in total, we have an increase in costs of 8%, so close to the growth in revenue. But broken down by channel, we've got some positive outcomes. And so our costs month in, month out are below budget. We're improving cost discipline across all of the cost categories. So overheads are falling. Other costs are at a similar level. So we had some costs in 2019 that didn't appear in 2018, so the support for [ units. ]

But if we look at the store operations, they're falling from quarter-on-quarter, and we're looking for additional opportunities to reduce costs. So if you were to look at this presentation 1 year ago, you would see slightly lower costs, but we've added the cost of Switzerland, which are now part of the base, so we're now showing this with Switzerland included. So in all of the groups, whether we're talking about leases, costs are falling. It's not so easy to observe because of the euro exchange rate, but we can see that in our contracts and staff costs, and other costs have positive trends. So the cost per square meter have fallen by some 7% on a comparable basis.

If we look at the changes in the operating result, the bridge here, you would have to say that, generally speaking, our operating result is lower at segment [ level ]. So Western Europe, you can see very clearly there's improvement in the results here on a year-on-year basis. And Switzerland has very clear market improvement. So we were PLN 27 million losses, and we've reduced that to PLN 9 million in losses. So the improvement is quite clear.

We had also a one-off as a result of the change in our policy for recognizing inventories. So basically, the structure of inventories corresponds to what we have in Poland. And so this one-off is in Q4, but in the future, we have to classify it for the full year. And so we can anticipate better results of around PLN 6 million in each quarter. So you can see a market improvement in Switzerland, but this applies to costs. We're still not happy with revenues.

We're selling a large quantity of goods. But what we've lost is the price, and the prices are lowered by 3 to 4 things. So we had -- we've been able to maintain the same prices, we would have been in the black, but there's been quite a lot of optimization here. So if we look at Western Europe, so there are certain phenomena that were across the board. In Czech, we can see some competition, big competition from other e-commerce players. We see more wage pressure in Hungary. Things are up by some 20% year-on-year.

Then we have certain elements that are linked to single quarters. In Czech and Romania, we've opened a large number of stores, so 12 stores in total. In Q4, in middle of December, we opened them. So the costs we incurred across the quarter, but we're quite pleased with the commercial results, as I've indicated previously.

And the major positive element that I would like to mention is that we have the lowest level of inventory in the last 10 years. We've reduced this by 20% year-on-year, measured by square meter. We said that we were going to do this, and this is something that we've been able to do. And we're pleased with that. We've been able to improve that by shortening the lead time and by having better quality in inventory planning.

If you were to look at this composition, we've got PLN 1.2 billion in retail. So in particular, we're reducing the amount of inventory we have in our central warehouse. And so what we have is getting to the stores much faster. We're pleased with the changes here also in terms of the age structure. So the company has done quite a bit of optimization, but there's still quite a bit of potential for us to seize. So we looked -- a year ago, we had 5 satellite warehouses that we've consolidated in a single site. We have our own warehouse. So there's potential for us to continue developing here. So thanks to this development and optimization of inventory and optimization of our liabilities, we've been able to improve our cash conversion cycle.

And major change in the model of operation at CCC, which means we need less capital to stock stores in order to be able to deliver the top line we want to have. We want to drop below 100 days in our cash conversion cycle. We're close but every next step is more difficult than the previous step. So getting to 100 or dropping to 100 will demand a lot of effort from us. What we're pleased with is that we've been able to close the gap between liabilities and inventories. So if you can take a look at what it looked like 2 or 3 years ago and where we are today, we've been able to reduce that gap by PLN 160 million, and we will continue to work on financing inventory through liabilities.

If we look at operating cash flow, we are -- have a big plus year. We had anticipated that we would have even better results. If we look at our investing cash flow, this is PLN 113 million. This is between stores, the warehouse and eobuwie and to some extent, our IT system. So it's around PLN 600 million on the full year. In the past, it was PLN 1.5 billion. We've done a lot of investment in order to achieve this goal. So our investment plans, CapEx for the future are much smaller because there would be no need for us to do that.

The outcome of our plans and our execution over the last 3 years is the net debt, which is PLN 960 million. So it's quite stable across the year. If we look at net debt-to-EBITDA, even though we've had 3 soft quarters at the beginning of 2019, we're around 3x. So we're still below the 3.5x figure which is important. And we're going to be able to work on reducing that parameter in line with the tenets we embrace in our strategy.

What we would like you to remember from today's conference -- there's a lot of information we're trying to deliver to you, but there are 5 things that are very critical. One thing that's very important is the market improvement and the cash conversion cycle and the decline in inventory per square meter. These are things that are very important in terms of our operational efficiencies, asset utilization. And then we have a growth in gross margin, both in our retail segment, so brick-and-mortar segment, as well as in e-commerce segment. And our like-for-like result is below expectations, but we've addressed that.

And we've done a soft diagnosis of that within our strategy, and we're successfully implementing our strategy. So Western Europe segment still continues to be unprofitable, but we have the first signals of improvement in Switzerland and Austria. So according to IAS, we have to classify the net result we have in the group in Germany. It has to be treated as -- HRG, it has to be treated as if it was an operating result. So we have ongoing improvement in the product offering and sales channels, and this is quite an important element.

So what are the prospects? We would sustain our guidance that we delivered during the strategy. We believe that our top line will grow by 20%, 25%; positive like-for-like, around 5%; and so top line growth in eobuwie with 30%, 35% as we expand the product range. So we're above that objective at present, and we assume that we're going to be more selective in expanding our sales base.

One of the chances we have is to monetize the projects. We see what benefits these projects have delivered. We're starting to tap into that. We're going to have more points of interaction with clients. We'll continue to develop our product offering. We're going to have better and better collections in the future. And then we have a well-designed marketing strategy.

Some of the risks are unfavorable trends on foreign currencies because of heightened uncertainty, then higher staff costs, wages. And then one thing that's on all of our minds is the further development of the coronavirus. This can affect the supply chain, the consumers, our operational efficiency. So the first 2 things are more important

on us.

We define -- the supply chain, we're diversified. We feel comfortable we're doing this with sufficient lead time. If you look at our organizational efficiency, we're well prepared for a variety of scenarios. But what the consumer is going to do, that's something we can discuss, but we can't break development paths here. Well, a black swan doesn't submit to easy forecasting.

If we look at the growth of the group in 2020, we're moving in the direction of omnichannel and e-commerce. We'll open another 24 e-commerce points of interaction with customers in a variety of countries where we're present, either through CCC or eobuwie, hybrid stores, esize.me, MODIVO and DeeZee.

We're very pleased with the development of e-commerce. If we look at the development of our shopping space, we assume that we'll grow by some 40,000, 50,000 square meters in space. We're treating space very selectively. We're selecting only the best space.

In terms of the costs and the top line forecast, CapEx is around PLN 200 million. Today, we would see -- it would vary from PLN 100 million to PLN 200 million depending on what's going to happen in sales and the company's needs. What we will curtail or defer in time, if needed, so the IT expenditures or to develop more warehouse space, we're able to reduce this CapEx to PLN 100 million with ease.

I won't say too much about the marketing strategy. You'll see us in TV. We'll be there more strongly. So we had basically extinguished that. That wasn't good that nobody was hearing about us. And this is one of the reasons why we were selling less. So you can see that our share of voice had fallen significantly. We're coming back. We're going to emphasize quality, having in mind Gino Rossi and some of the trends, our collaboration with Eva Longoria and innovativeness. All of this is being done to strengthen our brands, to attract younger and more demanding clients, and we want to intensify our communication with customers. And you can see that in our showroom, you can see some of the examples shown here. And so we hope the marketing, along with our product [indiscernible], in conjunction with other activities we're taking, will enable us to spread our sales wings despite some of the difficulties we see on the horizon.

Maybe a couple words about where you could run into us, but some of these meetings are independent of us. Perhaps there's some risk about whether or not these meetings will take place. We believe that in April, we were going to have the Investor Day, but this will depend on what's going to happen around the coronavirus. So we're here for you by e-mail and telephone, and we would encourage you to be in contact with us. I won't say too much about this today. There will be time for discussion. We have our nonfinancial [indiscernible] finance what's the composition or the mix of suppliers, what innovations entail. There's a lot of valuable information, even for those of you who know our company quite well, this would be an inspirational source of news.

So we would invite you to take a look at that document, and I'll go ahead and give the floor to the Chairman of the Supervisory Board. I think he wanted to add a few words to our communication today.

[Dariusz Milek, executive]

Good morning. I'm here just to lend credibility to what our CEO has said. Generally, I don't have anything else to say -- to add to that, unless there's some specific questions that you here in the room would like to pass.

[Marcin Czyczerski, executive]

Maybe that's a good idea, if you'd make the decision on what we're going to discuss now. We've presented quite a bit of information. I think we're transparent in sharing information, and we're here to respond to your questions. And so we're now at your disposal.

[Unknown Analyst]

I'm from [indiscernible]. Since nobody wants to start, I'll try. Could I ask you to dwell a little bit on coronavirus, especially in the context of whether or not you've been able to reduce the percentage of products being in-sourced from China? And what might happen in terms of your involvement in sports? A number of events have been called off. Do you see any impact or is this a zero impact?

[Dariusz Milek, executive]

Perhaps I would respond. Ladies and gentlemen, we're business people. And we're not clairvoyants. It's very difficult to say what's going to happen in a week, a month or a quarter. You probably don't know and that's probably why you're asking me. It's not the supply chain, we're pretty well organized. Most of the product is in Bangladesh, Turkey, Europe, Poland. In China, I think we've got 9 -- 29% of the product in terms of quantity, less than half in terms of value. But above all, panic is the factor at play for all of us, and we don't really know what the final repercussions will be. I believe that the spring will come, it will get warm and this problem will dissipate and the health services will be able to overcome that. It's very difficult to say anything. Well, sports events are being called off. We have a contract for 1.5 years. We want to discharge our contract. We have a sports brand that we're advertising. They're not being called off, but they're going to be -- they're being deferred. They're being proposed. We know it's a big issue to postpone something -- the sports event that's transmitted across the world, broadcast across the world. So basically these events will be differed, so the friends wanted to -- an event with an tie-ins, [indiscernible] want to invite the French and we'll have another war, sports war. So basically, everything is taking place under the name of panic. That's the name of the game at present.

[Unknown Analyst]

I'm from [indiscernible]. My first company is about the level of inventory. You've published this level of inventory per square meter. Is this the very bottom, the trough or do you see more room to go lower? And was this done as a result of models or sizes? Or was it something else? That's my first question. The second question is about your television advertising because half a year ago, you said, quite pessimistically, you spoke about utilizing television advertising. And you said that the cost structure is more important for television advertising. And now we hear that you want to return to television advertising. What realistically has contributed to the change in this decision?

[Marcin Czyczerski, executive]

If we look at inventory per square meter, we see potential to -- for further optimization, I would draw your attention to the fact that this inventory per square meter is linked to the fact that we have a much broader product assortment. We've got DeeZee, we've got sports brand, we've got bags and things like that, luggage. So if we didn't do that -- had we not done that, our results would have been lower by PLN 200, PLN 300 per square meter. So it's the outcome of sending products on a timely basis prior to the season and looking at the sales calendar. It might seem -- but now, it's a key thing to do this on a timely basis. We're very pleased with what we've been able to achieve and accomplish. So in a year, we're going to be able to improve even more. So following -- after the New Year, we've got then spring, then we have summer. So we've got products in the warehouses, and we'll be able to distribute that to the stores. And so we're going to be the first to stock spring and summer, which is maybe different than in -- you had said to us, for example, in the fall, that we are still stuck in the summer because we are behind. Now the question is totally different.

The second question was about television advertising. We continue to look for what's the optimum approach. If we look at how the customers -- what path customers follow, we've got different customer paths. The truth is somewhere in the middle. We have to find the right mix. We're looking for the proper mix. And so the selection of people and forms, and we're doing research. So we've got quite a bit of certainty that this is the right form. But what we've seen -- so the reduction in share of voice, that's not the right direction. This has to keep pace with market share. If we stop talking about ourselves, there's -- even though we're -- there's a lot of brand awareness that the customer could forget about us. So this is the right direction to continue keeping our share of voice.

[Dariusz Milek, executive]

Can I share my point of view? In terms of advertising, we are the leader and we have to be the leader in advertising. So there's a lot of new brands and e-commerce, and the only thing they have is a product and advertising. They don't have stores, they don't have warehouses. So they're trading on a different basis with a sort of player like this on the market. So if we look at inventories, I'd like to have even more inventory, but I want to have more sellable, merchandisable inventory. So it's really good margins. We're raising margins now. And so I think we can see the impacts in the upcoming quarters.

So you have to have good rational inventories to make sure that it's sellable, negotiable for multiple seasons and to make sure that you don't run out of products. So we wanted to get rid of old inventory, even at the expense of margin or unsellable. So even if we have the old collections, say 40%, you can't see that it's old because it's full merchandisable value. So thanks to the fact that we've sold at discounts the less attractive shoes, sometimes we get more basic shoes and footwear and some more fashionable. So we want to have more products that are sellable across the year that aren't linked to, say, ambient temperatures. You can -- so a loan cost a certain amount of money, but if you don't get your margin, this is something that you lose forever. So don't choke us on inventory. Things are quite good. It doesn't have to be much better. As the CEO said, this is an e-commerce inventory that we have to have at our disposal. This is a very good ratio for us. We're partially a producer and not just the sellers.

We're producing earlier, sometimes we're accelerating seasons by a month. We've not been able to accelerate this season because some products were a little bit behind. But next year, by 1st of February, we're going to have the full spring collection in the stores. We're talking about Chinese suppliers. We'll get the products much quicker and this will give us bigger margins, and we'll be able to get into the sell-off season more quickly.

[Unknown Analyst]

I'm from mBank. My question is about the second ratio, which seems to me to be more important, which is sales density, so sales per square meter. The company has seen quite a big decline from PLN 700 to PLN 500 per square meter. Did we see any improvement?

[Dariusz Milek, executive]

Probably not. If you look at the numbers, probably not because we've increased square meters. We have much smaller cost per square meter, that's the result of having bigger space. You don't need this many staff, you've got a lower amount of lease fees fed out. But in terms of our product range, we've not grown to the space we have. So we'll have more diversity in our product assortment and product range, more products. So once we get these 2 figures in line with one another, things will be quite okay. So we're making sure that our format is more aligned to what the market wants as opposed to having our own ideas about how things should work because the market has gotten rid of our -- has verified our ideas on that subject.

[Rafal Wiatr, analyst]

I'm from Citi, Rafal Wiatr. I wanted to ask a follow-up question. The first thing, could you say a little bit more about what's happening with your suppliers? Have you had any signals in the recent months that -- or have deliveries not been made because now you're ordering fall and winter, how do you see this situation? Is it the case that you're just waiting and seeing -- waiting to see what's going to happen or is this moment in time when you have to start looking for alternatives and whether or not there are any alternatives? That's the first question.

The second question is, could you think about what's happened in Central Europe? And the main results, is this a one-off? How do you see that flushing out and can it be changed?

[Dariusz Milek, executive]

We're saying this, once again, IT systems, collections, not enough full year collections, delivered too late, whether there was a large number of factors, the lack of advertising. Of course, we anticipate better things. That's why we're here to make a better company than it was. I'm not sure what you really want to hear. Should we basically take a supplicative role? We had the strategy. We had conferences. We're saying is -- actually this is something look for positive things in the future and let's not go back to the past.

[Marcin Czyczerski, executive]

Well, what we've addressed in the strategy, we said that we're focusing on the key markets, Poland and Western Europe. We have to nurture them more closely. They have certain similarities. So if the weather doesn't drive our sales, we have to have other drivers. E-commerce is something that we have in Poland. Now 2 big players have entered the Czech market. It's not just market share, but you have to find the product. You have to take care of the web page. These are things that where we fell short. Big changes are taking place in Slovakia and Czech Republic. So a lot of our traffic in Czech Republic is organic growth. So customers are waiting for us to show up there. Sometimes people haven't bought anything in the internet and they come into our stores.

So we have to say that our results are better, as you can see in our results. But that was linked to the calendar of openings, store openings. If we look at Hungary because of the inflation of wage 20%, we haven't changed prices there for a long time, even though wages have moved up. So wage actually 20%. So we have those 5 major countries, like Poland, so we have that comfort that we're going to be able to deliver good data in this region. We're going to focus to a greater extent here as opposed to the outskirts in terms of suppliers in China.

This is not the time to just go out and try and find somebody else. The bulk, so 80% of our suppliers have already said that they're ready. They're back in their plants. They don't have the full production capacity yet because their suppliers and cooperating entities don't have full staffs yet. So they themselves say they're like 30% of capacity, but they're improving week-on-week. We're not traveling there, but we're base -- we're relying on what we're hearing. So the situation is improving. We've got a buffer because of the new sales calendar. So even if this phenomenon will improve at this pace, this won't create much of a difficulty for us. But we can't say whether or not we'll be fully online in March or April or May. So if things change, we'll have to shift our transportation module. Instead of by ship, we'll have to go by train. So this is a small difference of 1 or 2 pair of shoes. So I don't want to externalize things.

[Dariusz Milek, executive]

So what I found is I received a response from anybody else, but you wanted to get a response from us. There's a lot of fog out there. So who knows what's around the corner. It's hard to be a clairvoyant and say what's going to happen in a week or 2. So you won't have traffic in shopping galleries. If somebody says in TV, stay home.

So if you look at CCC, we'll have 10% of sales in e-commerce. So we won't be able to go anywhere without e-commerce, you have to be omni-channel. We have to have a catalog of products, advertising. These are things that are delivering results, and perhaps only low price networks or chains will be able to function without e-commerce. E-commerce is something you have to have. We're entering the market with some delay, but we're doing it dynamically, and I'm pleased with the changes we've made.

Then we have the delivery dates, the margins, the fit between products in the stores, segmentation of stores. We've done quite a bit. This was all written down in the strategy. These are things that are happening. So I would say that by Q3, Q4, we should start to deliver results. By that time, we should have market improvement.

[Unknown Analyst]

I have a question about inventory of shoes, winter shoes, where we didn't have the winter, you had inventory. Is this inventory leftover from the winter? Is it a problem for you? If so, how will you solve it?

[Dariusz Milek, executive]

So It could turn out that we have a gold -- a pot of gold. So I would say, like 25% leftover, so inventory is falling. We didn't go crazy in terms of offering sales. We don't want to dress people free of charge. We've got the shoes taken back from the stores and we'll come back to first price points. And so they'd be lower prices than for the new shoes. We want to raise the prices by 5% to 10%. So we think the market is going to be able to withstand that because we don't have direct price competition in our brands categories, and we'll have the proper marketing campaign, so things should just flow. We're trying to tell you that we've made a few mistakes, and we've poured ash over our head. But we've drawn conclusions at every stage, even in terms of the people, the technical product range factors, I should say that we should be able to deliver the proper effects, and we're praying to make sure that there's no more problems.

[Marcin Czyczerski, executive]

Any other questions? Or have we exhausted your pool of questions? Any Internet questions, questions from the Internet? If so I'll ask for my colleague to read out those questions.

[Unknown Executive]

Question #1. Is the company considering some sort of purchase of its own shares, treasury stock?

[Marcin Czyczerski, executive]

We don't have these things on our agenda. We would inform of them in the -- as defined by law.

[Unknown Executive]

Can you share any information about sales results in Q1?

[Marcin Czyczerski, executive]

I can say this quarter is a little bit incomparable year-on-year. And I'll utilize this opportunity, although I don't want to give a trading update, what the differences are going to be because the change in the sales calendar is going to be very important in terms of what individual months of the quarter mean for us. So for example, January, as in most other networks, if we look at sales, we had many more sell-offs. We started a little lower. We don't want to have certain products on our shelves in the following years. We sold them at lower margins. So we had smaller margins with pretty good like-for-like sales figures, which might not be true of the entire industry, whereas in February, we started spring much earlier than last year. So we weren't selling winter shoes at all. We were selling 100% more spring collection than a year ago. And so this means that in February, our margin was higher but as didn't sell winter shoes, we had like-for-like sales figures that were lower. And so the entire quarter depends on what's going to happen in March. What we see and everybody see is that we see slightly suppressed traffic. Is it weather or is it some sort of fear? It's hard for us to ascertain that at present. It's not a clear and unambiguous picture. Perhaps the Chairman would say something.

[Dariusz Milek, executive]

So better conversion, smaller traffic. So we've changed the collection. So once the sun comes out, we win. So we have a difference of 7 degrees on average as opposed to 14 degrees on average last year. So it's very difficult to talk about comparable quarters.

[Marcin Czyczerski, executive]

Any other questions?

[Dariusz Milek, executive]

Let me just add one more thing. The sales calendar for February, March and April, it's going to be flatter. So if sales don't work out in March, then we'll have the whole quarter a little bit behind. But then we're going to be working on full margins subsequent to then, and so things will be flatter and it will be more replicative.

[Marcin Czyczerski, executive]

And this means you'll be able to assess our collections across the full season of spring as opposed to what would happen in the past where we had everything driven by weather in terms of the performance of a collection in the company and whether weather made that decision. These are things that are starting to happen. So this -- we're going to be reporting 12 and 13 months. So in 2021, we're going to start the year beginning from February.

[Unknown Executive]

So from [indiscernible] there's a question. What was the main reason of last year's loss in HRG Germany of PLN 140 million? What is the outlook for the German group in this year?

[Marcin Czyczerski, executive]

HRG, even though this is concentrated primarily in Western Europe, they have similar conditions to the ones we're working in. It's not the case that we ask footwear and leaders in Eastern Europe that we're the only ones dealing with these problems, so weather-related phenomena. The lack of strong e-commerce in their case, these were reasons for softer performance. But if you look at the prospects for HRG, let me remind you that we are involved as an affiliate. This is a financial investment and this is the approach we take. We don't get involved operationally outside of the wholesale sales, that's our systemic approach. And so these are the ties that we want to maintain or loosen them, but we're not treating Germany as a operational market where we want to steer that. We're focusing on Central and Eastern Europe -- western Europe or Germany is not our market.

[Unknown Executive]

Does the management team see any problems for MODIVO's development, having in mind what Zalando wants to do in terms of wanting to focus on the premium segment?

[Unknown Executive]

If we see some risks because somebody says something, then we'd have to close down our business.

[Dariusz Milek, executive]

So I think that's the most specific commentary you could get. That sort of thing.

[Marcin Czyczerski, executive]

Any other questions from you, ladies and gentlemen here in the room? If nothing new has come to mind, we would like to thank you very much for your attendance. Not everybody was able to join us today, so we appreciate very much your presence, and we look forward to seeing you in the near future at the beginning of May, if I remember correctly. Thank you very much. Bye-bye.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]