Dariusz Miłek: "Ja zarobię, jeśli rynek zarobi"

Good morning.

I don't attach such importance to investing, more to management and organization. But when there were issues, I participated willingly and capitalized my own portfolio in CCC. I have no other shares, no other companies, so I am only an investor in CCC on the stock exchange.

More the president delivers than the investor. Actually, I've been president of CCC for two years now, and we've managed to organize this business a bit faster and at lower cost. Consequently, better results. But what's important is what we intend to achieve, because the results are history. This year 2024 is history. Year 2025 is a year of very big challenges, very large investments in expansion that we haven't had before. We are opening three times more stores than in our best period. Yes, we are running multi-channel sales like Half Price, CCC, WarBox, EOB, and these metrics are growing fast. Square meters are searching for us, not the other way around. Everyone wants to have our stores, so we are taking advantage of good lease conditions, I think, and it's a good time for expansion.

Well, the stock price maybe didn't so much grow as it returned to what it once was. But my return was also coincidental with the fact that I invested for the third time, actually the second, then I invested in an issue and put in my own savings of several hundred million again. And I thought that this organization has to change a bit. Decision-making, speed, it all has to change. To put it briefly, topics have to be simplified, faster, fewer projects maybe, more effective projects, projects that are necessary for running the business, because we had a mass of projects, you know, more managers, more boards, more experts, more projects in the company. Not all of them are really needed to just sell shoes, because we are really a simple organization – produced and sold in our own stores. And all those surrounding things just terribly slowed down the organization and the whole business.

A bit of both, really. At this point, someone had to take this responsibility. You know, when you are a hired president or with the board, they are happy to admit mistakes and take it all on themselves, but sometimes that chest cannot bear the failure that comes with it. I had to take it on myself and take responsibility for the further fate of the company. I built my business for 30 years and wanted it to finally pay off. Obviously, there was high debt, lots of ideas that hadn't yet come into play. Now it's much easier to talk about it, because we are not starting Half Price, we are continuing it with great success. We have licenses that no one else in the world has in such quantity and quality – we produce and sell ourselves in our own channels, which is very important. No middlemen, no agents, no distributors. We capture the entire chain from production to retail, hence our higher margins, and we will base our business on high margins and recognizable brands for which we are licensees.

Positively. Finally, we could pay a bonus for the year. Yes, because we were bogged down, there was a lot of work, zero financial results. We weren't generating money, and that's important in an organization, because without that everything is more expensive.

Rather yes, although obviously some things could have been done better. Probably not all the effects of this work were visible in those years, because the organization was a bit overheated both cost-wise and organizationally – too many people, too many managers, too many departments, too many various things. But now we are building synergy, and that synergy will probably be visible in the coming quarters, at every level of the organization. Costs of operations are decreasing every quarter, and that is pleasing. But if someone says it's already cleaned up, no, there is still a lot to do and improve in our synergy. I can only add that we will grow through the square meters of new stores opening, but the costs of headquarters will not grow – they will actually decrease.

Probably the hardest were the reductions in managerial staff, especially at Modivo. That was a difficult decision. But that part of the business hadn't been profitable for several quarters; we saw a decline in profitability, and there were just too many things happening that had no impact on the business but heavily burdened the cost side. Now Modivo is only a sales channel for us, not an organization. We handle all logistics, all commercial sales for the entire group, without a big overhead of various departments there. Those are now unified – things like IT, expansion departments, store development – everything is connected.

Results are already old things, hard to talk about. Actually, we had the best year in history in terms of turnover, the best in terms of EBITDA. We had the best year in terms of net profit, over a billion zlotys. So one could say these are impressive results, but I think that results should be much better in future years, and that is what we are aiming for. Now we are focusing on acquiring new, very attractive licenses, and a very large expansion that will give us around 300 or even more square meters per month. So just the turnover of these square meters will allow the company to grow over 20% annually in revenue. And with higher revenues, we should transfer that synergy effect and achieve better financial results. The whole point is that I am continuously building synergy in the group – one expansion department, one HR for all brands, one logistics, one marketing department. Previously, it was split across different companies and it was hard to manage.

Everyone needed it.

And everyone thought their department was the most important in the whole organization, whether it generated income or not, it was very important.

I understand.

The key assumption of the strategy is expansion – new square meters in all brands – and margin, meaning we must produce ourselves and get rid of intermediaries, agents, distributors, and work directly with partner brands, which are far fewer. And to focus on own production under licenses. Licenses give us the advantage of recognizable brands worldwide. It was hard for us to expand on brands originating from our home country. So today we have such brands that will allow us to sell better, more effectively abroad.

Out of profits. Okay, that's exactly what I wanted to hear. Yes, honestly, we are building a bit of a perpetual motion machine – we get good lease conditions, often with some contribution, so we don't invest fully in the store. Mainly, we should expect to invest in furniture, which we take on lease for 180 days, and after that time the store should earn enough to pay for the furniture. Of course, all stores are very profitable, with very high EBITDA profitability. That allows us to think about development. As for the product, nowadays we buy very wisely with extended payment terms based on reverse factoring for our suppliers, meaning we give them liquidity and we pay after 180 days. So if we could rotate the balance in 180 days in the organization, we are home, and we are aiming for that.

Stock-market-wise, I don't know where we will be, because it all depends on valuations and market sentiment. But business-wise, we should triple the business within 5 years, and I am aiming for that, to open nearly 4,000 stores in this part of Europe. In those assumptions I didn't even plan that we would be opening stores in the West, like Italy, Spain. There we are starting and it's going quite well. That business, even though not yet well-known, is satisfying. That will probably be a direction of development too, because Spain and Italy have 100 million people, actually more than 100 million – almost 110 million – much more than our entire region: Poland, Czechia, Slovakia, Hungary, Bulgaria, Romania. And I also count on being able to sell our goods there, because they are very good now, getting better. They bring a high margin relationship and are recognizable. There are many Poles buying apartments in Spain or Italy.

Yes, but we don't write on the store that we are from Poland. The market is globalizing now, everyone goes everywhere. So we are trying our expansion in Spain and Italy, and I think the store we opened in Italy shows that no one refuses to buy branded products at half price. So it's a phenomenon, and I can say that in that part of Europe there is no Half Price at all. We become the market leader overnight, one could say. Also the signals from shopping centers are very good now – everyone wants our Half Price. That's something we invented 4 years ago. We've been running it for 3 years and we have profitability close to 20%. So it's very good.

From today's perspective. But am I talking about that time or today's?

Exactly 35. Are you where you wanted to be?

I didn't think that way back then. But looking back, I probably should have started trading faster, finished my sports career faster, and started trading faster, and maybe done scale earlier, because it was a bit of a side job. Of course, just like in cycling, when the leg is good, you win everything – flying finishes, mountain stages, general classification – but at that time it was clear that the leg was giving out, that the business was doing well, and you could think about doing it longer for as long as the good times allowed. Because we entered a period when trade was liberalized. In the 80s, everyone could trade, but they were prosecuted for it. You couldn't trade much. Those first two years, 1989, '90, '91, were a time when everything sold in the country that you brought in, because there was a shortage of normal goods. Starting with spoons, Duralex glasses, everything sold. And that was a time when I was also checking it out – I traded everything for the first two years, then in 1991 I started trading shoes after two years, and that's how it stayed until 2004.

There were two options. Either to get a financial investor who would inject capital, because we were at a point where we had invested a lot, building a large logistics center, our own factory in the economic zone, starting to open stores, and there was a moment in 2003 when this business slightly collapsed. We had a small crisis then. I remember that the currency cost 4 zlotys to the euro, and after half a year it cost 5 zlotys. So when we were a producer and we had bought a lot of leather at 4 and had to pay 5 for it, the entire production margin was essentially eaten up by the components. There was a moment when the company was making little money even though it was significant. Maybe it was 350 million zlotys in turnover, but we earned maybe 1% net profitability, whereas earlier years had high profitability. And then there were problems with banks; everyone wanted to shorten, and we had to do something. So we were choosing: either a financial strategic partner, and there were such, or the stock exchange. And it turned out well that it was the stock exchange at that time, because we gave away only 20% of the business on the stock exchange. We got an unimaginable sum at that time – maybe 70 million zlotys – and the capitalization was immediately 350 million at the first listing. So it was a wow. I was building a big business. Today it's maybe 50 times more. So it doesn't excite me. I always think about being one of the few Polish companies to succeed abroad. It's hard for a small country like ours, to do international retail on scale. We are a medium-sized country, but we have ambitions.

I'm saying, in Europe, and there's a chance that we'll succeed, that we have the fuel to do it, so to speak.

But we've already been there, we had a price of 300 zloty, right? So it doesn't evoke such emotions. Actually, we're a bigger company now. I'll say that at one point our market cap was three times revenue. We were very profitable and expansion-minded, opening a lot back then. But we lost our way a bit before COVID, overinvested in various things. And COVID did its damage. But we've put that behind us. I don't want to go back there. I think I'll never return. I'm too smart to do it again. And now we'll do everything based on our own very large engines.

180, I'm sorry.

Why we bought it. Yes. Well, because we didn't have e-commerce. First of all. We weren't technologically prepared for e-commerce, and a competitor was growing up next to us, essentially 70 km from our headquarters. Actually, we were constantly attacked by investors asking why we didn't have e-commerce. I explained it. But what's the point of teaching people e-commerce when we have such a large retail network? I thought a bit differently, that I would delay it. Then I thought, how much can an e-commerce cost? Let's buy a company that already has e-commerce, it will cost around 20 million. But when I saw that the business was growing well, 100% annually with a solid EBITDA, I recalculated it on my EBITDA and my valuation, and frankly, we bought eobuwie for 2% of our capitalization. At that time it wasn't a lot of money, because our shares were worth over 10 billion, and we paid 180 million for 75%. So from the perspective of shifting a bit of capital, it was a very good move because then we were highly valued and eobuwie was cheap.

Just as I was buying back then, it was 1% of capitalization. I obviously overpaid, because I could have done it a bit later and cheaper. But today, the content that cost us the whole day in Russia, that returns to us in a year from the margin. Otherwise, from the surplus we can take for the Russian brand versus others. If we sell 3 million pairs of accessories, shoes, bags, from Russia, it's 50 zloty more per piece. That's about 150 million, which is roughly what we cost for the Russian brand including the overpayment. We bought stores, factories, inventory. Those stores were later closed during COVID. We shut down the factory. You could say it wasn't a profitable investment from that perspective, but from the perspective of the value this brand brings today at our business scale, it's a year, right? It pays off nicely.

But it had to be predicted and consistently said, 'I need this in my business,' right? Like many things I say, I need them. At that point, I had already insisted on eobuwie, because there were many takers and the price was rising every week. Basically, my partner was tough in negotiations. But in the end, it paid off very well. Then we had very good valuations before and during COVID for eobuwie. Of course, the e-commerce business was booming. Then there was a slight crisis in e-commerce because everyone overdid it after COVID, everyone thought it would grow 70%, but it grew 5 or 10. Hence the higher inventories in warehouses. Everyone started having inventory problems, discounting, margins falling, costs rising because everyone was advertising, selling cheaper, and the business turned out unprofitable or near zero, like it happened with us. But now we're rebuilding nicely. We have EBITDA of several to over a dozen percent. I think this year it's a record. It's an absolute record in Europe because big companies have small single-digit EBITDA, and I think my e-commerce will be the most profitable in the world. Why? Because we'll serve our own channels: CCC, Warbox, Half Price, and many other steps like runner's step, basketballer's step. If we serve our own and have our own brands, it's very profitable.

Well, I'll be immodest, but all the serious things happening in my organization, I come up with. That's why there's no strategy department anymore. Not at my place, because there were four people at CCC and six at eobuwie. They didn't come up with anything for several years. All they brought was what is happening in other companies. But that can be done by a secretary. And there were many such things, empty departments.

What's that? It's not about a crisis, it's more that people stop buying, footfall decreases when something happens in the world. Let me give just a few examples from our experience: when the pope died, footfall in malls was half for a month. When our government plane crashed, it was the same in April; no one was in malls. Everyone stands in front of the TV watching what's happening and suspends their spending on consumption. Grocery stores don't feel it as much because you have to eat, but a new pair of shoes, at a time when there's a tragedy in the world, probably not. And that's a strong slowdown in every industry.

Yes, only that among investors, there was talk of a serious crisis at the company at that time. I wanted to ask about...

The crisis was related to costs. Imagine, we were generating over 5 billion in margin annually and not making money. No, so one investor once told me, 'You have what margin?' I said, '5 billion in margin.' He said, 'Then where is the money?' That's when I started thinking, damn, there are too many expenses on various initiatives and projects. We had hundreds of projects in the organization. Behind them are people, departments, and additional external costs. Imagine that today at eobuwie, about 1,100 people work; before it was 1,700, so 600 fewer, and nothing happened. There are simply fewer departments. Today, Modivo is a flat organization. It's mainly logistics, warehouse workers, a few dozen in call center, a few dozen taking photos, and a two-person secretariat. Nothing more is needed. Everything is centralized. Now Modivo operates like a sales channel, not a separate company and a huge organization.

eobuwie was a company prepared for the stock exchange, because there was a different set of investors, there was Softbank, Rafał Brzuska, and president Solosz, and the stock exchange was promised. So they behaved like a company preparing for the stock exchange. First, they couldn't make money, and second, the market conditions for companies dropped a bit, the sentiment fell, so the valuations weren't satisfying to us. So giving eobuwie into foreign hands again, sharing with another shareholder, was not in our interest. Because where is the profit center? At the end, right? The logistics service performed at eobuwie also served Modivo, sorry, that's the name of the company. Modivo also did logistics service for CCC. So how do you value it? Should it cost 7 zloty, 9, or with a higher margin maybe 15? Where is the profit center? Some investors ask which side. Today it's clear: we own 100% of shares in eobuwie and Modivo, and there's just one. If someone wants to invest in our organization, it's only through the main listed company, which will have 100% in each of these companies, and that's how it should be seen.

Partly me, partly Jamie. Jamie, I'm sorry. Jamie is a very good American entrepreneur. I'll say that this year he'll probably do close to 50 billion in turnover. So he's a guru in the whole business. In fact, I'm coming back from a meeting with him because he was with me, and we're constantly coming up with things. He's always buying something. Two days ago he bought the Dockers company for over 300 million, I think, dollars, and to be honest, he buys something every day. So he'll be a big player. He's probably second in the world after Disney in terms of licenses. And then what? Jamie came because we only had a license for basically Reebok bags and backpacks. But the director from the region saw us, came to us, saw our organization, how clean and nice the stores are, not to brag, we really have very nice concepts. When we go to the States or elsewhere, everything there is, shall we say, neglected, the concepts are. They don't pay attention to order, appearance, cleanliness, aesthetics, arrangement, visual merchandising, nothing. I don't know how it prospers there. We're talking about the mid-to-low end, which I represent, because boutiques are of course high quality, but the mass stores, it's a disaster. If it looks like that, there's nothing to be inspired by for us. When he saw it and came to Poland, because the director told him, 'You have to come here, Jamie, and see, because this is a client I discovered.' When he came and saw our concepts, he said, 'No, no, I have to give you all these licenses, not take them away from others, but give them to you.' It was a long road to take away something that was promised for 30 years. But we managed to pull those licenses for my region where I operate. And you could say that today I'm probably the only one in the world with direct retail sales that has such significant licenses. Just as I'm the only one in the world that has full-price, meaning normal sales channels with an omnichannel development, I have up to 40% of e-commerce sales with full price usually. With off-price, if someone has that off-price, the clearance model, they don't mix it with retail, but I want to create synergy on everything. That means we have one Modivo club. We have 27 million members in clubs across different networks. Today we have 27 million in one Modivo club. We've transformed them all, with consent of course, into one big club. I hope it will be the largest loyalty club in Central Europe. And we're capturing synergy everywhere, and that synergy will be visible sooner or later, because it's a big project. Today a lot of people are signing up for Modivo Gold. Modivo Gold is a paid club where they get additional privileges, discounts. These are normal clubs that function great in America, and we can bring many ideas from America, thanks to Jamie, to the Polish market. That's very important, for this Central European or Western European market. Americans already figured it out a long time ago.

Shaquille is part of ABG, because he is a shareholder and president of this Reebok basketball. And we also have licenses for Shaquille. We sell, produce, sell shoes under the Shaq brand and clothing. Now we're starting to produce. I think it's cool, a kind of interesting character, and the goods sell. It's okay. But these licensed goods will sell better because even when we go to foreign markets, no one really recognizes Lasocki there.

First, to make money, and second, to mitigate risks, as was the case. Remember, we had many large stores of 2,000 sqm as flagship stores in various countries, and they didn't perform during COVID. Before COVID, they were also weak because they were in the startup phase, but then COVID came and we started adding steps. You know, these are long leases, and there were costs that had to be written off immediately, again losses. And there were many losses, I recall, up to 1.7 billion in losses during COVID because we had to set aside reserves for store closures in Switzerland and Germany. So we decided to focus on Central Europe and save what we could. In hindsight, it was a great idea. But at the time, I was thinking about avoiding penalties, not paying empty rent, and running a revenue-generating operation. Converting those steps completely turned the result around. Instead of a 5 million loss per year, we immediately made a 5 million profit per year on Half Price, because a 2,000 sqm shoe store is a difficult challenge for a customer. Why would they need such a selection? Whereas there are a dozen categories, there are clothes, so this off-price was really a great idea. And I'll say this: we know how to open stores, we know how to manage them. Logistics is not a problem for us. What we need is a good business idea. And Half Price was such an idea at that time.

Of course it was mine. Even had a problem with my board in discussions about whether we would do it. I said, there are three options: either we do it, you agree, or simply I do it without you on the board if you don't vote for it, or I do it myself outside the company, because I could afford to do a separate business. But hey, hey, outside the company? How outside the company? You'll just give me all these locations now with penalties and outlays, you won't take a loss, I'll have locations for a new business, because we couldn't maintain 2,000 sqm. Warsaw had a store of 4,000 sqm, and today it's perfect for Half Price. And we had to convince the banks, prepare a business plan, get support from some firm to do a business plan, and so on. And we managed to convince the banks that we have the goods, have the location, and it's the best solution. Of course, there were two banks that resisted, that said no. But we had to pacify them and get our way.

Whenever I get my way, I succeed.

Everyone likes making money. Yes. But money is kind of a derivative of success. You don't think about money when you have success. I think money is something you have sometimes, sometimes you don't, sometimes you have more. As they say, you earned, you lost, so you didn't earn anything, right? But now things are really good in terms of our ideas, development, what we can do in future periods.

Actually, in that program, it doesn't mention Jimmy Salter; it mentions me, the main shareholder, and the management. Jamie is treated as part of management. The program works on the principle of first delivering results, and then on my request, the Supervisory Board decides, right? But let's give ourselves time, because it's a five-year program. We won't use it even if we beat our forecasts. I'm making a bet with the market for 1,000 zloty, and I'll stick to that for four or five years. I believe that the business I'm building now will take off even more. And as for my salary, with the dividends I plan or other things I have, it's always a problem: is 100,000 zloty a good salary? I should probably earn more, I'm the president of three companies. So if I'm supposed to earn 100,000, I'd rather not earn at all and say I'm a very effective president because I have no salary but I deliver results, and that excites me more. If I were to set my own salary, it would have to be several million zloty annually. It's a difficult question, right? How much should Dariusz Miłek earn in the organization? So it's better not to ask that question and say he doesn't earn.

Then I'll earn when the market earns, right? That's what I've always stuck to. And this time, I'm not young anymore, but not that old either. I'm 57, and I think I can really deliver all these things that we've marked out together with the management at high speed for these 5 years. We're ready and we have the fuel, right?

Certainly, delivering what I promised and the prospect that I can deliver even more, right? People buy the future a bit, not the past. So we're entering new areas, entering franchises on other continents, and entering wholesale. Many additional things will accompany us. And the scale effect will also build lower costs. Lower purchase costs, better rent terms, always lower logistics and marketing costs. All this will contribute positively.

Well, of course, I don't have such... The simplest thing is to base the program on valuation, because then everyone earns, rather than on EBITDA, because the question was always why based on EBITDA and not only on valuation. It's known that valuation comes from EBITDA. So it's easier to accept the program when everyone has made money. So we based it on one indicator: the company's valuation. I think if we look at the off-price market leader, its valuation is 150 billion dollars. So we're far from that, but it already has no advantages over us, so to speak.

Thank you.