CCC – A bumpy road in 2019
The company surprised in a very high dynamics of costs in Q1, worsening the EBITDA result y/y despite the very high sales growth y/y (sales in March +86% y/y). In April-May period, CCC reported low sales dynamics of the Group, recording significant declines in sales per sqm. in the CCC stationary network. We believe that the problem of low sales is the slow increase in the product offer, which did not keep up with the expanding average floorspace of the company’s stores as well as the further downward trend in shopping mall visits. The negative impact on sales was compounded by unfavorable weather conditions. Adding foreign brands and a growing share of e-commerce should limit the growth rate of gross margin on sales y/y in 2019. The cost base is affected by (1) consolidation of KVAG, Gino Rossi & DeeZee and (2) additional costs related to marketing and sponsoring of the CCC cycling Team. The high cost base should be maintained in the following quarters, and the processes of business integration and further development of the product offer should last at least until the end of 2019. We expect potential improvement in earnings y/y and synergy effects in H2 2019. Taking into account the expected deterioration of the company's result in H1 2019, we are revising our EBITDA forecast (excl. IFRS 16) from PLN 764m to PLN 421m in 2019 and from PLN 910m to PLN 627m in 2020. Considering the above, we are downgrading our rating to hold with a target price of PLN 161.
CCC is engaged in the wholesale and retail trade of clothing and footwear. Co. offers its products to wide range of consumers, from demanding clientele of trendy boutiques to value-oriented medium segment customers, to less wealthy customers seeking reasonably priced quality footwear. Co. pursues a strategy of brand diversification, which is reflected in its three autonomous distribution channels: a chain of official CCC stores, BOTI footwear shops and QUAZI boutiques. Co. offers more than 2,500 designs of footwear. Co. also owns more than 67 proprietary brand names e.g. Lasocki.
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