Top Secret sees further growth potential

In 2018, the Top Secret chain earned a gross profit of PLN 1.2m, with revenue at PLN 249.1m. In the years to come, a further extension of the domestic fashion network is planned to achieve economies of scale and use operating leverage. The TXM discount network in turn commenced a restructuring process to improve its liquidity and financial performance. Taking into account the results of both segments, last year the Redan Group posted revenue of PLN 602.3m.

In 2018, the fashion segment generated PLN 249.1m in revenue, up 3.6% compared with the previous year. A somewhat higher increase, by 5.4%, was recorded in the case of the sales margin, which stood at PLN 116.9m. In turn, distribution costs and administrative expenses grew by 9% year on year, as a result of which last year the Top Secret chain posted a gross profit of PLN 1.2m and operating profit of PLN 1.0m. In 2018, retail space of Top Secret stores in Poland increased by 9.8% to 30.9 thousand m2.

“Top Secret shows healthy growth in Poland. However, last year we witnessed two different periods. In the first two quarters, we fully met our sales and margin targets, but in the second half of the year, sales were hit by unfavourable weather. Very high temperatures in September delayed the demand for fall items, which prompted the need to execute aggressive sales efforts at the end of the year. Still, our gift collection was very well received by customers. Despite weaker performance in the second half of the year, Top Secret stores in Poland maintained profitability. In turn, the e-commerce channel not only improved sales by 9%, but also its profitability grew by 3 pp. Lower sales and margin were recorded in foreign markets,” said Bogusz Kruszyński, the President of the Management Board of Redan S.A.

“The achieved performance confirms the viability of strategic goals for the Top Secret brand. In line with the assumptions for 2019–2020, sales profitability is expected to increase,” he added. Strategic goals for the coming years include expansion by approximately 30% of the Top Secret brand distribution channels in Poland (offline and online), making it possible to profit from the economies of scale and operating leverage. It is assumed that sustainable and consistent growth of the gross margin by 3 pp will be achieved to match the clothing industry average.

In 2018, the TXM discount segment posted revenue of PLN 353.2m, down 8.1% in comparison with the previous year. The sales margin grew by 0.7 pp year on year, to 39.3%. Concurrently, distribution costs and administrative expenses were reduced by PLN 2.6m. Nonetheless, in 2018 the discount segment suffered a loss before tax of PLN -58.1m, which largely resulted from operations linked to the launched restructuring process.

“The performance, excluding the effect of restructuring, was driven by a rise in sales margin and reduced costs of operations. Nonetheless, the decisive factor for TXM’s negative performance was the decline in sales,” stressed Bogusz Kruszyński.

In early April 2019, TXM filed a petition for opening accelerated arrangement proceedings. The purpose of the proceedings is to ensure that TXM will be able to continue its commercial activity and carry out restructuring, which is to improve its liquidity and financial performance and secure all entities that remain in a business relationship with TXM as well as their interests to the greatest possible extent. As part of the restructuring proceedings, TXM will seek to enter into an arrangement with unsecured creditors and conclude an agreement with banks financing the discount segment.

Taking into account the results of both segments, in 2018 the Redan Group’s consolidated revenue reached PLN 602.3m, having dropped by 3.6% year on year. The profit/loss on sales declined year on year by PLN 10.6m. Ultimately, the Group incurred a net loss of PLN 72.4m, compared to a net loss of PLN 37m a year before. The net loss attributable to owners of the parent amounted to PLN -45.9m (PLN -21.2m in 2017). The final audited financial statements of the Redan Group for 2018 will be issued on 14 May 2019.