Baltika Group ended the fourth quarter with a net profit of EUR 620 000, while in 2016 the net profit was EUR 177 000
The largest Baltic fashion design enterprise Baltika Group ended the fourth quarter with a net profit of EUR 620 000, which exceeded the result of the same period in the preceding year by EUR 287 000. The net profit of the enterprise for 2016 was EUR 177 000 and the net loss tEUR 6 359. Baltika Group considerably improved its profitability and the gross margin increased by 3.8 percentage points in the fourth quarter of 2016, reaching 51.8%. The annual gross profit margin is 50.0%, which means an improvement of 2.7 percentage points from the preceding year. The export of Baltika’s fashion brands, particularly Monton, to Central and Eastern European wholesale and franchise partners was the main growth driver in 2016.
“2016 gives us reason to conclude that several complicated decisions, like withdrawing from loss-making markets and focusing on increasing sales volumes in wholesale and franchise channels were a good prerequisite to achieving profitable growth. After having left the loss-making Russian and Ukrainian markets we have still succeeded in maintaining our position in those markets, having minimised risks and given our brand stores to experienced franchise partners to manage. However, in addition to our activities so far we have to make even greater efforts if we want to keep up in the tight competition of the fashion business. We have considerably increased our profitability thanks to investments into the Andmorefashion.com e-store and into increasing the sales volumes of the store, improving the efficiency of the wholesale of fashion brands in Central and Eastern Europe, developing the franchise area, and reducing marketing and administration. At the same time, we cannot be satisfied with the decreased sales volumes in the Baltic retail markets,” said Meelis Milder, the Chairman of Management Board of Baltika Group. “Competition is still the most significant factor in the fashion market, and competition has increased even further in recent years. This means that Baltika also have to make significant changes in our business model to stay in competition.”
In the fourth quarter, the sales revenue of Baltika’s continued areas of activity amounted to EUR 12 704 thousand, which means a 6% drop from the same period in the preceding year. Of sales channels, wholesale and franchise sales again showed the highest growth rate in the fourth quarter, i.e. 19% or EUR 923 000. In the fourth quarter, retail sales decreased by 8% compared to the same period in the preceding year, amounting to EUR 11 413 thousand. At the same time, the enterprise’s gross profit margin was 51.8% in the fourth quarter, which was 3.8 percentage points higher than the 48.0% margin of the same period in the preceding year.
“Although achieving growth in the Baltic retail market is difficult, the export of Baltika’s fashion brands or Estonian design is growing with the support of our wholesale and franchise partners and the e-store. The sales of Monton, the Estonian fashion brand with the largest export volume, demonstrated the greatest success. In a year, the number of Peek & Cloppenburg stores selling Monton’s collection increased by 22, and as at the end of the year Monton’s collection was being sold at 25 Peek & Cloppenburg stores in Central and Eastern Europe,” Meelis Milder explained.
In addition to increased sales volume, the transfer of the Russian retail stores to a franchise partners caused an increase in the wholesale and franchise volumes. As at the end of 2016, the number of franchise stores was 33, which is 26% of the store portfolio. The sales revenue of Baltika Group’s international e-store Andmorefashion.com increased by 12% in the fourth quarter, amounting to EUR 310 000. By countries, Estonia, Lithuania, Latvia, Russia and Finland had the largest sales volumes, with Lithuania’s sales volumes growing the most, by 48% compared to the same period in the preceding year.
The enterprise ended the year with a net profit of EUR 177 000. The net loss for the same period in the preceding year was EUR 6 359 thousand and a comparable result from continued business areas was a loss of EUR 844 000. In total, Baltika’s sales revenue for 2016 amounted to EUR 46 993 thousand, which was 4% less than in the same period in the preceding year, while marketing and overhead costs have decreased by nearly EUR 800 000.
“Having made the necessary changes in order to again become profitable, we shall continue with the chosen direction and strategy in 2017. We wish to strengthen our position in Baltika’s home markets of Estonia, Latvia and Lithuania, while also continuing to work on growth outside the Baltic area. Above all, our next steps involve developing and increasing efficiency of sales channels without taking excessive risks, as well as improving the international competitiveness of our fashion brands through smarter sales and marketing activities,” Meelis Milder added.