The main factor that undermined third quarter performance was the situation in the retail segment. Unusual warm weather in August and September dampened demand for autumn goods in all of Baltika’s five retail markets.

In addition, consumer behaviour was affected by increasing uncertainty and slackening economic growth, particularly in Russia, but to a lesser extent also in the Baltics. Competition intensity in Estonia and Lithuania has grown due to new brands entered the market and retail sales area has widened.

In the first half-year, the Group’s retail sales grew by 8%, in the third quarter there was 2% shrinkage, which lowered nine-month retail sales growth to 5%. In the third quarter, moderate retail sales growth was achieved in the Baltics (2%), where the growth driver was Estonia (5%). In nine-month terms, the strongest retail sales growth was recorded in Estonia (14%), followed by Latvia (8%) and Lithuania (4%).

In the third-quarter retail sales in Russia fell by 14% and in Ukraine by 6%. Addition to slackening economic growth, sales were driven down by the weakening of the exchange rates of the Russian rouble against euro. The Group’s nine-month foreign exchange loss amounted to 372 thousand euros.

Wholesale and e-commerce revenues grew by 20% in third quarter which meets the expectations set for 2013 to develop also other sale channels and increase sales volumes through wholesale partners and franchise.

Compared with the third quarter last year, the Group’s total revenue decreased by 135 thousand euros, i.e. 1%. Gross margin for the third quarter was 48.9%, a decrease of 2.9 percentage points year-over-year. The slide in the margin is attributable to consumers’ unseasonably weak demand for autumn-winter goods due what the proportion of new season garments sale from total sales was smaller than in last year.

Although after two weak months, sales resumed growth in October, the figures did not fully meet management’s expectations. Weaker than expected results at the beginning of the fourth quarter may put achievement of the company’s financial targets for 2013, which were released on 1 October, at risk. The current year’s fluctuating sales figures along with the uncertainties prevailing in the economy make it difficult to make forecasts for the near future.

Baltika Group