LPP SA

WSE:LPP

Earnings Call Transcript 2021-Q2

[Magdalena Kopaczewska, executive]

Hi. Welcome, ladies and gentlemen. Magda Kopaczewska, Investor Relations at LPP and Przemyslaw Lutkiewicz, Vice President of the Management Board of LPP. We would like to welcome you to our results conference where we will present our results for the previous quarter. We will also tell you about the interesting corporate events that happened since our last meeting, and we will tell you about our plans for the future. The last part will be devoted to Q&A session. As usual, this is our plan for today.

And now Przemek, you have the floor.

[Przemyslaw Lutkiewicz, executive]

Thank you, Magda. Welcome, ladies and gentlemen. We will start with key corporate events this time. And I have 2 pieces of news for you, a good news and a bad one. The good news is our financial results for the second quarter, which were very good; and the bad news is the outlook for the future that will await us for -- in the coming quarter. The second quarter was particularly good, thanks to several coincidences that helped us generate better results.

First of all, the delayed demand, because as you remember, the lockdown situation that appeared in the first quarter and the second quarter, which, in our case, is shipped at 1 month further, starts in May until the end of July. The stationary stores were open in the post-lockdown period, so this shift occurred.

On the other hand, better profit margins were generated, thanks to purchasing our goods in the previous year during the pandemic -- the peak of the pandemic, where we were able to renegotiate -- to negotiate better and more favorable prices.

The consumer that was strong and was willing to purchase in the periods post-lockdown in the springtime rendered it possible for us to avoid considerable sell-offs of the goods.

The transport was operating without failure. The costs were low -- or I would say normal, and all the goods for our brands were possible to be delivered to the stores and on time. These were the good pieces of news. But looking forward, towards the quarters to come, for this year and the coming year as well, we can see a lot of threats, mostly delays in maritime transport. We can see that a lot of ships failed to arrive, and a lot of companies are willing to transport their goods. So the difficulty starts in terms of room on the ships themselves.

Of course, railway transport is an alternative. We have been trying to put our containers on the trains that travel from China to Europe. But here, we encountered troubles as well. The problems relates to the fact that everybody is trying to ship their containers through the railway transport and they wanted to get them into the stores and warehouses, so there are queues also in terms of railway transport up to 3 weeks even. So for us, when we want to sell, let's say, jackets, the lack of those goods in stores caused strains in terms of supply. And this may turn into worse margins.

What else? We can see the increasing prices of productions. The factories in Asia increased their prices for the producers -- for the companies like ours, 10% to 20% increase in purchase price for the spring/summer season 2022. To add, also disruptions in the factories themselves. Since 20 September, we have observed that in our factories of China, there are some stoppages in power. So instead of 5, 6 days a week, only 2 days a week work for the factories means problems with deliveries and production.

Also shortages in IT equipment on the domestic market. We can see that there are some troubles in terms of supply of electronics. Like RFID tags, we have less than we need, and the lack of access to construction materials. In Brzesc Kujawski, we see the delay due to the fact that we have no furniture, for example, or lighting supplies. The whole situation is unprecedented. I don't remember anything like that happened before in the company, such a huge strain in terms of supply.

Last year, the customer didn't want to come or there was no customer. There was no demand, but supply was okay. But now we see that the customer wants to buy, but we cannot provide as much as we should. So the turbulent quarters are coming, but we will try, as a company, to deal with them the best we can as we have done so far in the difficult COVID times.

Ladies and gentlemen, let me just briefly remind you what the second quarter looked like or the first half of the year looked like. On this slide, you can see the previous year when in February, the strain related to COVID started and lockdown from March until the beginning of May. This year, it was similar. From February, there were lockdowns introduced in several countries, and they were continued in many countries up to the beginning of May. And from May on, the situation improved. Shopping centers were open and the demand really showed. The customers were willing to get into the stores, so the second quarter was very good in terms of sales.

Please have a look on this slide. We can -- you can see here the graphic representation in terms of days, countries and particular months. There were some periods from mid-March until the beginning of May last year that all the countries had lockdowns. This year was similar but not entirely similar. Russia and Romania didn't have any lockdown, but there are countries like Germany or Czech Republic where the lockdowns lasted even longer from February up until mid-May, so longer restrictions in some countries compared to previous year.

Let's move on now to key corporate events. The 4 thematic blocks we selected are the following. So the launch of a e-commerce warehouse in Russia. This is an investment in green energy relating to the construction of our new logistics center in Brzesc Kujawski and the solar panels we use there to get the solar energy. Another element is strengthening the Reserved collection. And I think the most important one is another element of expansion and opening of store in the North Macedonia and the launch of e-store for our customers in Bulgaria.

The new fulfillment center, which is a kind of a warehouse for e-commerce stores, have been launched in Russia, near Moscow. And this substituted the previous one that's operated before. It was twice the size of this one. And thanks to the bigger facility now and our software installed and the fact that it operates within our organizational regime, this all allows us to triple the efficiency as compared to what we had before. So we replaced the previous warehouse where the third country operated with our warehouse where all the operations are according to our standards and with the use of our software, which considerably improves the availability of the goods for the Russian customer. And importantly, we were able to launch new forms of delivery, which was not present on the Russian market and what the customer demands. We mean here the supply to the fitting rooms.

In Russia, it is popular to pick up the goods from the facility where the employee gives us the parcel. We can unpack it in this particular place. There are some fitting rooms. So the customers may try on the clothes and, of course, take what fits them. And what is wrong in size or whatever, they immediately give back, which means all the process is done in an efficient manner. So now thanks to the new fulfillment center, such services are available now for the customers in Russia. And therefore, we can see how it translates positively into an increased sales results on that market.

Another important element of our sustainable development strategy is energy. There are 2 elements worth considering here. We have just signed a contract for wind energy. This is a contract which has been signed for 10 years, with possibility of prolonging. And it can cover our needs with even considerable surplus in terms of energy use in tri-city buildings, in the headquarters and as well as in our Pruszcz Gdanski facility.

Another important element of our sustainable development strategy is energy. There are 2 elements worth considering here. We have just signed a contract for wind energy. This is a contract which was been signed for 10 years with possibility of prolonging. And it can cover our needs with even considerable surplus in term of energy use in Tri-City buildings, in the headquarters and as well as in our Pruszcz Gdanski facility.

Another important element of our strategy is the solar energy, the photovoltaic panels on the roof in the warehouse in Brzesc Kujawski. This facility will have a lot of panels installed that will allow us to fully cover the energy needs of that facility. And the additional technology installed there in terms of moderating lighting or changing the air conditioning or ventilation settings, this will allow for greater comfort of the employees working there.

Another element regarding our collection, I would like Magda to help me here and say a few words what's going on in Reserved.

[Magdalena Kopaczewska, executive]

Thank you, Przemek. This quarter, a lot has been happening with our main flagship brand, Reserved. We introduced a newborn line for babies, and this supplements our previous offer in Re-kids. Thanks to this, our clients -- our Reserved client, who is a mom also, stays with us for longer. In this new line, we place a huge emphasis on comfort, quality and, of course, fashion.

We also introduced collection for moms' pregnancy clothing because we know that there is a demand on the market for such type of clothing, which would be both comfortable, ready to use and still within the trends.

We have also developed in the Reserved brand, the athleisure trend. This is a trend which combines sporty and urban style with the more elegant look. It's like an oversized jacket combined with a legging or even sweat pants, sneakers and an elegant bag. A few years ago, this kind of style might be surprising, but today, this is something that is very popular.

Wrapping up the fashion topic, let me just add that being in tune with the voices of our customers, we expanded the size range of Reserved brand. So now it will be possible to buy bigger sizes.

I think that would be all in terms of fashion. Now Przemek, you have the floor. Please tell us some other interesting elements that happened.

[Przemyslaw Lutkiewicz, executive]

Thank you, Magda. We are continuing our development in further countries. We made a debut with our stores in North Macedonia. This is the 26th country where we have our stores. In Skopje, the capital city, we opened the Reserved store. And in the weeks to come, we are launching the stores of our other brands.

Another important information is that as part of the continuation of this Balkan expansion, we opened an online store in Bulgaria. And in the very first days, it recorded a lot of traffic. So we see that where our brands are possible and popular, the online offer is gaining popularity among the customers very quickly.

Now take a look at the slide with the map in green, you can see the online and offline offer of our brands. In blue, you see only offline offer. And in this orangey color, we can see the countries where we only offer online.

Over 2,000 traditional stores after the end -- at the end of April. Now all the stores are opened. There are no lockdowns introduced, no restrictions in any countries. However, some countries and some companies point out that there might be a risk. Like in Ukraine, there are some red zones in the country, so we are anxious and we are observing the situation there. We'll see if the lockdown will be introduced this autumn.

Summing up or maybe emphasizing here on this slide what's happening on business: over 2,000 stores at the end of this half year, over 23% of increase in floor space year-on-year, 25 countries in the offline network, 30 countries with online offer. So all together, we are present in 38 countries with our offline and online stores. And the group revenues increased by 80 -- over 81% in the first half of this year.

Moving on now to the results of the second quarter. On this chart, you can see considerable revenue dynamics in the second quarter year-on-year, over 70% of increase. All our brands recorded strong double-digit increases, and Sinsay even triple increase in revenues. This is omnichannel revenues, of course, so combining offline and online offer.

Only House brand generated lower revenues from abroad, but all the other brands generate most revenues abroad. The strong rebound of demand after the lockdowns -- the first quarter was in the lockdown situation, but now we can see considerable rebound. The customers are willing to visit traditional stores and buy spring/summer clothing.

We also observed that the online sales did not drop. The dynamics is not as huge as in the previous parts due to this demand in the offline offer. The biggest increases were in the countries in Europe. Apart from Poland, we are all glad that all the regions recorded increases, but we hope that Eastern Europe, like Russia and Ukraine, after the change of the situation with the warehouse, we will note and record greater sales there as well.

22% was generated by online stores. We can see the trend of shifting to mobile devices for their shopping. Over 86% of all visits on our websites are generated via smartphones, and nearly 70% of purchases were made via mobile devices.

Let's have a look at revenues by regions. So geographic approach here in Poland, over 40% of overall revenues, 60% is apart from Poland. So the CIS demand is noting greater increases. And strong increases also noted in Europe apart from Poland. On the right, you can see the chart and corresponding figures of floor space increases, almost 24% increase year-on-year in the floor space. All the regions noting increases. And the most dynamic, almost 50%, this is the CIS region.

Now a few words about profit margin. Good profit margin resulting from low purchase prices because we ordered during the peak of the pandemic. And also, not a lot of sell-offs because the customers were willing to buy what we offered. So the favorable foreign exchange of rate of dollar now over 40 -- over fourth quarter now, we are worried a little bit about the margin in the coming seasons.

On the right, you can see inventory, and we see a slight increase because we have more floor space now and online sales also on the increase. But inventory per square meters, this is just on a similar level as previously, around PLN 1,400.

Now costs. Cost of stores are quite low. Please have a look. On the left-hand side, you can see the cost from 2019, PLN 200 per square meter per store. On the right-hand side, you can see how considerably this changed during the pandemic. All the cost elements were decreased.

Now when we are getting out of the lockdown situation and the stores were opened in the second quarter and operated in full, we are happy that the costs are not like before the pandemic. It's about PLN 160, PLN 170 per square meter. So we maintain lower cost per square meter when it comes to the lease of the rent of the floor space.

Now the personnel costs increased. Because we have new stores, we require new employees. So this component is on the increase. And opening new stores and stocking the stores and supplying the material, this all causes that other costs also are on the increase. So overall, increased by 11% year-on-year in the stores.

On the right-hand side, you can see the SG&A. The stores, the e-commerce and the headquarters, especially the e-commerce logistics cost, they returned to the levels before the pandemic. It used to be PLN 300 per square meter, and we are returning to these levels now. You can see the change. The cost of stores are lower, but the online is on the increase. So overall, 14% increase year-on-year.

Now let's move on to the results -- financial results for the second quarter. Revenues grew about 70%. Good profit margins with slower increase in sales rendered it possible to give us PLN 600 million operating profit and net profit of over -- the next slide, you can see the comparison of what we have under IFRS 16 when we had previous reporting model. Now our results in the second quarter under IFRS 16 were slightly better than IAS 17.

And summing up, overall, almost PLN 6 billion revenues for this period, increased by 80% with considerably better gross profit margin and SG&A costs rising slower. So we have PLN 682 million of EBIT. Last year, it was almost PLN 400 million loss. And now we can see a positive change from the big loss in the COVID year to the considerable profit this year.

So summing up this first half, we can see a lot of elements that helped us to work out that generate good results. So this deferred demand, open stores and the willingness of the consumer to spend money also on clothing, this helped us considerably. The profit margins, thanks to the low purchase prices, were helping us as well. We didn't need to organize some much sell-offs. The customer was willing to buy. The supply chains worked well, and the goods came to the stores in time.

Now it's changing. But of course, we can see that generally, the customer is strong on all markets in the European market. This helps us a lot. And we want to continue to run our business in a safe way, so we maintain net cash.

Now just a few words about the plans and outlook. It's very difficult to talk about the plans because the situation that is so dynamic on the market when it comes to supply chain causes that the -- this visibility -- these predictions of what the profit margins will look like. This is not very optimistic. I would like to emphasize the challenges because, obviously, we will face some.

So most of all disruptions in supply chain, rising transport cost, which, looking from the perspective of the first half of next year, this will not change. Maybe entire next year will be -- we will be experiencing the difficulties, finding room on ships to have our containers transported here.

So what are our plans? What are the remedies for the difficult and disruptive supply chains? We are trying to shift most of the collections to Europe, maybe Turkey. The Turkish factories will be the huge beneficiaries. A lot of companies will move their production there.

We are trying to use a railway transport. Of course, this presents various results. The things that were -- the advantages of the shipping via maritime route now changed because on the railway transport, we see also some disruptions. The trains are stopped in Europe. And the timing of transport via railway, this is similar to the maritime transport. Now it's prolonged to 4 weeks.

So what worries us also is that it's difficult today, when we put the container on the ship, to predict when it will actually arrive. A few years ago, this timeliness was quite high. 80% of the ships were according to schedule. And we see that there will be no more ships operating in this transport.

The factories, apart from China, all of them are operating as normal. But we can hear that in China, there are some limits in power supply to the factories in China, which may affect production. We are facing these challenges and these disruptions in the supply chain from Asia to Europe.

We don't know what is going to happen when it comes to the pandemic and the wave of infections. We are keeping fingers crossed that the situation will be better and we will not experience any further lockdowns. But we can see an increased inflation and the cost of materials and services, cost of the salaries also increase and higher exchange rate.

But our target, such as continuation of double-digit floor space growth, is still maintained. Our plan is at least 27% more floor space year-on-year. Our plans are also ambitious when it comes to online sales. We believe that the PLN 2.8 billion should be exceeded in sales. And we will keep on working to maintain the profit margin and CapEx at PLN 1.2 billion, of which nearly PLN 1 billion for stores.

We are happy that the collections proved successful and the customers are willing to buy them. The favorable price, the quality ratio which we want to maintain has positive results. We need to make sure that everything is delivered to the stores on time.

That's all when it comes to the update of the current situation. Thank you very much, ladies and gentlemen, and we would like to start the Q&A session.

[Magdalena Kopaczewska, executive]

First question. Please provide information, what part of this A/W collection has been delivered? And which part is subject to potential delays?

[Przemyslaw Lutkiewicz, executive]

The delays pertain, as I said, 3 weeks. Extreme delays that we observed, they pertained to -- let me just visualize this. The container with swimsuit that was supposed to be here in July, it arrived in September. So I do not need to explain the problems associated with that situation. But now about 15%, 20% of the collection is delayed. This, of course, affects our plans when it comes to selling those items.

And let me just jump forward to say and tell you something about the third quarter. The August situation was good. Back-to-school effect was strongly observed. Record sales in August. Then September was slightly worse and untypical because the -- it was lower than in August, and this is an unusual situation.

Now at the beginning of October, we see the dynamics like slowing down a little. So we lack the product that is normally sold at this part of the year. So we need to manage this. This deferred demand and the willingness, this will come to an end at some point, of course. Maybe now is the time that it's actually going to stop.

[Magdalena Kopaczewska, executive]

Next question. Please provide us with information as to what the increases in prices will be for autumn/winter and spring/summer collections?

[Przemyslaw Lutkiewicz, executive]

We are expecting or we're planning for the S/S collection that the prices will be increased between 5% to 9% on average -- 6% or 7% on average to cover the costs or the inflation. And what I will need to add here is that the increase of the production cost, 10% to 20% that we record at the producers, 15% on average, will affect our trade margins, a few points in the S/S season, lower than what you can observe now.

[Magdalena Kopaczewska, executive]

Another question. I can see that a lot of people are active here. Write-off on inventory, to what extent did it pertain to previous collections and to what extent to the autumn/winter '21/'22 collections?

[Przemyslaw Lutkiewicz, executive]

It was mostly for the previous collections. So spring/summer '21 that we finished the sell-offs and closing the first half. About 15% of the whole write-offs also applied to the autumn/winter delayed collection. We did it for the first time now. The write-up on the collection that will arrive in the warehouse, we know that they are delayed, and sell-offs are unavoidable because they will be too late in the stores.

[Magdalena Kopaczewska, executive]

To what extent the issue of nice flow of the supply is felt in the context of contracting S/S collection?

[Przemyslaw Lutkiewicz, executive]

As you know, with the delays that we experience now, we try to make production faster so that the goods are loaded as fast as possible to get them here on time. We try to -- but everybody is doing -- all the companies are doing the same thing. So the hot period of Christmas shopping is ahead. Everybody wants to have their goods in store. There is this Chinese New Year, so the Chinese factories will stop production. Everybody needs to place their orders beforehand so as to keep the production going and transport the goods to Europe.

So we are trying to ensure that we have some room on the ships for our containers. We will see how this goes. This is not easy because everybody is doing the same thing. And let me emphasize once again that we decided to move a part of production to Turkey to have a quicker delivery. Another challenge apart from Christmas will be Black Friday, which is the shoppers' holiday.

[Magdalena Kopaczewska, executive]

You mentioned that the prices supported gross margins on sale. To what extent? What is the pressure when it comes to the disrupted production processes in Asia and inflation?

[Przemyslaw Lutkiewicz, executive]

When we looked at the prices and what if we didn't have such good purchase prices, 3 to 4 percentage points margins would be lower. So it's a lot of savings, thanks to the more favorable purchase prices.

[Magdalena Kopaczewska, executive]

Another question also pertains to the goods. What scale of price increases do you see now?

[Przemyslaw Lutkiewicz, executive]

Now on the market, we do not see a lot of price increases. Our competitors and we as well, I think there will be like minor 2%, 3% increases. There is not such a huge pressure now, but we have been observing what's going on, on the market. And the new prices will be visible with the spring/summer collection. But disregarding even what the competitors are doing, looking at the inflation pressure, we have to increase the prices, so 4% to 5%, up to 9%, depending on the assortment in the spring/summer collection of the next year.

[Magdalena Kopaczewska, executive]

Another question. In September, do you observe similar trends when it comes to market growth dynamics year-on-year as in August?

[Przemyslaw Lutkiewicz, executive]

The statistics office show 28% increase in textiles, clothing and footwear. It was even higher in our case, but what worries us is this like slowdown in the dynamics. As you saw, for the first half, it was 80% increase; second quarter, 70%. And afterwards, in August, the dynamics were of the level of 60%; 50%, I think, in September; and now looking at October, 40% or below. So the dynamics of sale in the coming months is lower and lower.

[Magdalena Kopaczewska, executive]

Let's move on. Based on the data of H&M for the third quarter, from June to August, it showed that the share of the company on the Polish market is on the decrease. Do you observe lower competitors pressure on the markets?

[Przemyslaw Lutkiewicz, executive]

Let me answer in this way. We do not observe lower pressure because no one is like withdrawing from the market. Everybody is present on the market. But it seems that similar problems to us, to what we experienced, other suppliers also experienced those. With the strong consumer who is willing to buy, the companies do not have to fight in terms of prices and sell-offs because the customer is willing anyway to buy the clothing.

[Magdalena Kopaczewska, executive]

Another question. To what extent the deferred demand and to what extent the lower competitor pressure supports the sales?

[Przemyslaw Lutkiewicz, executive]

This is an interesting question. I think demand is key here. And this shift from the first quarter in the lockdown situation to the second quarter, this is the key factor causing that the companies in our industry find it quite easy to sell the goods. So now a strong consumer is what drives us and what drives the revenues. We will see the situation in autumn because it has been changing dynamically over the last 2 years. So we are willing to see what the future has to offer.

[Magdalena Kopaczewska, executive]

Increasing the expansion of the network in this year, what geographical regions and brands do you mean?

[Przemyslaw Lutkiewicz, executive]

First of all, we are developing the brands which generate good sales in smaller cities because of the prices of Cropp, House and Sinsay brands. So Reserved and Mohito, our flagship brands, they develop a bit slower because this happens mostly in bigger cities, in shopping malls. And we focus on online, online for Reserved and Mohito. Yes, that's mainly online, and we want to be present in bigger shopping malls.

But such brands, the younger brands from our portfolio, they have been developing very well in smaller cities, in retail parks that are built now in smaller cities in Poland but also in Romania, Bulgaria, in Russia and in the whole Central European region. And moving the sales to these regions, we want to be a part of it and provide the customers with the offer of our stores there.

So geographically speaking, Russia, Ukraine, Romania, these are the 3 countries that we want to focus on in terms of our development because there are many more smaller cities, and we have the possibility of launching the stores there and also online store -- online sales for the younger brands offered. On the Western side of Europe, we are not planning expansion because we observe the situation that's happening. Now there is one store in the U.K. We keep maintaining it, Germany as well, but no expansion plans there.

Looking at Western Europe, I think more difficulties are experienced there in comparison to the Eastern Europe. We benefit from the strong consumer situation in the Central and Eastern Europe. This drives us forward. It seems that the Western -- or Eastern Europe, they have completely different situation when it comes to clothing market.

[Magdalena Kopaczewska, executive]

I strongly agree, yes. The 2 last years of difficulties in terms of COVID emphasized that. One more question as regards to expansion, but it's more precise. This is about floor space. At this stage of the year, could you please share the pace of the planned floor space expansion in 20 -- year '22, '23?

[Przemyslaw Lutkiewicz, executive]

Our plans now that we are working out on the year to come are double digits as well. We would like to maintain over 20% increase in floor space.

[Magdalena Kopaczewska, executive]

Thank you. What normalized level of cost per square meter should we expect in the coming quarters?

[Przemyslaw Lutkiewicz, executive]

I cannot answer this question because the changeability, this turbulence and inflation, this all causes that we are uncertain as to what the cost base will look like.

[Magdalena Kopaczewska, executive]

Let's move on to further questions. There was the question about the expansion of the floor space. What about the results in the U.K. and Germany?

[Przemyslaw Lutkiewicz, executive]

In the U.K., poor results. After Brexit, we see the transportation problems and the problems with supplying goods to the U.K. caused that the results will be worse than in the previous year.

But we are optimistic when it comes to Germany. On the one hand, our presence on that market, for the seventh year in a row, and increasing recognition of our Reserved brand causes that the German customer is buying more online. So online sales in Germany has been quite strongly driving the revenues from the country. So we believe that this year, we will be able to generate profits on the German market.

[Magdalena Kopaczewska, executive]

What kind of seasonality in terms of results should -- could we expect this year? I would like to know that. A lot of seasonality and a lot of changes.

[Przemyslaw Lutkiewicz, executive]

It's hard to answer this question. There are a lot of question marks for us as well. We are thinking what the year will bring. The third quarter is expected to be good, but I'm worried more about the fourth quarter or the first half of the next year.

[Magdalena Kopaczewska, executive]

Thank you. Can you say in percentage point what the quantification will be in terms of challenges? And what is meant here is production and freight prices may lower the gross margin in the second half of 2021 and in the year 2022.

[Przemyslaw Lutkiewicz, executive]

Let me just give you a range. We are still uncertain. Next year depends on the dollar exchange rate. Now it's on the increase, unfortunately. But looking at the margin, for the second half of this year, the winter margin will be more difficult. We expect 2 or 3 percentage points drop. And spring/summer season, because autumn and winter, we don't have any plans, but now it may be lower, 5 to 6 percentage points drop.

[Magdalena Kopaczewska, executive]

Thank you. Another question. It seems that Inditex didn't communicate such problems. Relatively, it looked quite strong. Aren't you afraid that after you increase the prices of your collections, they will be relatively less attractive versus Inditex collections? This positioning versus Inditex, is it still important? Or do you have the brand strong enough that you kind of went away from that comparison?

[Przemyslaw Lutkiewicz, executive]

I am very much afraid of those elements that you -- that I mentioned as regards to the future. Of course, we are afraid to increase the prices. Let's remember that there were deflation in our industry. This would be the first time that the prices will be increased so strongly, but we have no other choice. We need to cover the increasing cost.

So despite we -- the fear that we have in terms of price increases, we have to do it. If the competitors will not go for that, the difference in price will be more leveled. But it seems that we have many business lines in Reserved, so it makes it possible for us to differentiate from the competitors. And online sales drive this nicely. And the cheaper brands that are developing strongly, they should balance this negative effect when it comes to the increase of prices in the Reserved.

[Magdalena Kopaczewska, executive]

The last question for today, when will the online store available in Serbia because all the countries close to Serbia, they have enjoyed the online sales for long?

[Przemyslaw Lutkiewicz, executive]

Yes, it's like too many stores at a time. We cannot launch all of them at the same time. We want to launch it in Kazakhstan and in several other countries when it comes to online. But ladies and gentlemen, you have to know that it seems easy, but it's difficult to provide full customer service when it comes to local language, local call center services and so on. That's why this takes so long because we want to have it operating very well.

In the European Union, it's easier. Serbia is not in the EU. So it's waiting in line, similar to Bosnia and Kazakhstan. We are planning to introduce online sales in all those countries. But there are over 100 projects planned in the company launched right now, and we are trying to do everything with the resources we have available. I'm not sure if 2022. I hope so, but I cannot promise everything at this point.

[Magdalena Kopaczewska, executive]

I told you that this was supposed to be the last question, but when will other brands have their own apps apart from Reserved brand?

[Przemyslaw Lutkiewicz, executive]

We will have Sinsay app launched, and other brands will have their apps next year.

[Magdalena Kopaczewska, executive]

Thank you very much. I think this would be all in terms of Q&A session. Thank you very much, ladies and gentlemen.

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