Kid ASA

Good morning and welcome to this Q1 presentation with KID ASA. With this, I give the word over to CEO Marianne Fulford and CFO Mats Keegan. Thank you. Good morning, everyone, and welcome to the presentation of first quarter 2025 results. Before we begin, I would like to take a short moment to introduce myself as I recently stepped into the role of CEO on May 1st. I've been a part of KIDS since 2008, initially joining as category manager. Since 2016, I have served as director of sourcing and assortment, playing a key role alongside my team in shaping KIDS concept and product assortment over years. I have a deep understanding of kids' business model and my primary focus will be on further strengthening and involving this winning formula. My previous experience includes six years with Tempur as head of sales and regional manager. And I also had different marketing positions in my earlier career. I hold a master degree from BA Business School. I'm 49 years old, a Norwegian citizen living in Lyr, married and mother of two. Well, I think that's enough about me. Let's turn our attention to the first quarter presentation. We present a positive start for Kid Group in 2025, reaching all time high revenues for the first quarter of 733.7 million. The 5.3% growth comes on top of 15% growth in first quarter last year. The growth this quarter is mainly driven by HempTechs. Gross margin decreased by 0.9 percentage points. The OPEX development this quarter includes investments in future growth initiatives and EBITDA decreased by 9.2 million this quarter. Mats will provide more details later in the presentation. Category development remains a key growth driver. Category launch since 2022 accounted for 39.1 million in revenues this quarter. Revenues this quarter were somewhat negatively impacted by the timing of Easter compared to last year. We have also experienced some logistical challenges, causing slightly delays in the spring and summer assortment. Please note this relates to first quarter, not second quarter. We have completed six store projects, three in each segment during the quarter. Our two first extended stores have been signed in Sweden, expected to open by the end of first quarter 2026. The expanded warehouse building in Sweden was handed over earlier this quarter. Focus going forward will be on ramping up the operation and optimization solutions for the new warehouse, which is progressing according to plan. We have signed new financing agreement with Nordea and Mats will get back to that later in the presentation.

Good morning everyone. For the first quarter, reported group revenues increased by 37.2 million compared to last year. This represents an increase of 5.3%. I will come back to the highlights on segments shortly. The revenue development this quarter is considered as a good start to 2025, given the timing of the Easter and the temporary logistical challenges, as Marianne mentioned. This causing some slight delays of this incoming spring and summer assortment. Please also bear in mind that this revenue development comes on top of the strong and high growth base from last year. During the quarter, we observed in general a slight decrease in number of customers compared to last year. This was offset by the average basket size. I also want to highlight that the online revenue share increased by 0.3 percentage points to 12.3 this quarter. Easter came later this year, affecting the number of total shopping days and the revenues from seasonal products. While Q1 had the same number of total shopping days on a group level as last year, the distribution and value of these days varied across the segments. In terms of categories, we continue to see a general positive development across the major categories. I would like to point out that duvets, pillows and furniture categories are standing out in addition to the sale of seasonal products this quarter. Kidd Interior delivered a revenue growth of 3.3% compared to the strong first quarter last year. This revenue development is mainly driven by a decreased number of customers in our physical stores and online, offset by the basket size. Due to the timing of Easter this year, an incremental campaign was added in week 13 for our customer club members, at some expense of the margin. Finally, we had one more shopping day compared to last year in Kidd Interior, resulting in 76 days in total. Hemtex performed relatively better this quarter compared to Kidd Interior, and I'm pleased to report a total reported growth of 8.7%. Measured on a constant currency basis, the revenue growth was 6.1, mainly driven up by online. The revenue development is driven and explained from the decrease, as in key interior, decreased number of customers to physical stores, offset by increased basket size to both sales channels. In addition that we also had more shopping customers to our online channel in Hemtex. The revenue growth is among others attributed to a small change in the campaign activity plan in week 13 compared to last year. On the total quarter for Hemtex, we had one less shopping day due to the leap year last year. Overall, I am very satisfied with the positive start of 2025, achieving a total revenue growth of 5.3%. Given the circumstances as explained with the revenue and also seen in the light of the revenue development in April, we will come back to later in this presentation. In terms of gross margin, we delivered a gross margin of 60.6% for the group, which was driven down by both Kidd and Hemtex compared to previous year. The gross margin development this quarter is mainly a result of higher share freight in the cost of goods sold from the freight rates we saw observed throughout 2024. In addition, we also had impact from volumes from clearance sale of seasonal products compared to last year and the incremental campaign as mentioned for Kidd Interior explained on the previous revenue slide. I want to underline that regarding the clearance sale of seasonal products, this year was more typical and business as usual for Kidd Group. as we went into 2024 with historical low inventory levels, including seasonal products. The low inventory level was a result of the successful Hemtech's 50 years campaign and the strong final quarter of 2023. Finally, I would also like to highlight that we last year reported early price adjustments to address the higher freight rates, which was elevated due to the unrest in the Red Sea and Gulf of Aden seen late 2023 and throughout 2024. Summarized, the group gross margin of 60.6 is a result of the elements and factors explained, and is in line with our financial objectives. Reported operating expenses increased by 8.3% in the quarter from last year. This may seem high, but there are some important explanations. Employee benefit expenses increased by 7%. And this increase is mainly explained by last year wage settlement and salary increases. We have expenses from new stores also bringing in positive revenue development and the new stores driving hours. And we have a consistently high level of profitable store project activity, which Marianne will come back to sharing some more details. Logistics is also a driver following our revenue development this quarter. And we also have some increased share of use of own workforce compared to external workforce. Additionally, also some more roles to HQ. This quarter compared to Q4, the previous quarter, we had a more significant currency effect compared to what we saw, explaining 1.7 million of the total increase of 12.5. The other operating expenses increased by 12.7 million, and the increase is largely attributed to marketing investments. These investments align with our ambitious plans. We have also increased floor sprays in our store portfolio. And this quarter, I mentioned the furniture was a category standing out as a key important driver for the revenue development. This also has an effect in terms of freight and distribution, last mile distribution. Additionally, we incurred some extraordinary costs this quarter due to the initiatives we have going on, which will provide future growth, increase capacity and improve efficiency, together with a more significant currency effect also on the other operating expenses compared to what we saw last quarter of 1.5 million. The extraordinary costs are considered to be non-recurring and this quarter we booked approximately five millions. With reference to previous quarter the Q4 presentation and Q4 report where we presented that we will in 2025 have additional costs related to the transition from the current logistical setup to the new throughout the full year 2025. These costs include scaling costs in Norway and Sweden. We are moving some goods from the site in Norway to Sweden, and we also have double rent costs. The rent costs are depending on the ongoing process of subleasing the warehouse in Lid. So in Q1, out of the amount of five millions, 2.5 was recorded as other OPEX, while the remaining amount was booked as rental costs according to IFRS 16. With a new logistical setup, the new hub we are establishing in Sweden, please also note that the cost allocation will impact the segment P&Ls comparing this year to previous year. To summarize the development of the first quarter, we have a good start of 2025 with increased revenues in both segments and all sales channels. We have a decreased gross margin, mainly due to the freight costs and situation seen throughout 2024. and the OPEX base as explained, including some extraordinary costs. This results all in all to an EBITDA of 115.3 million. In terms of cash flow, I would like to comment on the following items for the quarter. The cash flow from operations was negatively impacted by a planned inventory build-up and timing of other networking capital items. The cash flow from investments this quarter mainly relates to capital expenditures to our store portfolio. in Norway and Sweden, some IT initiatives and projects, in addition to the warehouse expansion project we are ramping up in Sweden. Please note that the capex this quarter from investments was partly offset by the dividend payment of 33.5 million, following the sale of the warehouse property in Sweden, completed in December last year. Cash flow from financing is explained by lease payments following IFS 16, net interest expenses, and use of the overdraft facility. This results all in all in a total change for the quarter of 219 million. I want to underline that this cash flow pattern is and follows a cyclical historical pattern for kid group. At the end of the quarter, we had cash and available credit facilities of a total of 590 million. Excluding IFRS 16, the net interest bearing debt was 649.9 million, resulting in a financial gearing ratio of 107 at the end of the first quarter. During the quarter, we signed a new financing agreement with Nordea. This includes expanded limits and under favorable terms. This will give us and support us on the ongoing operations in addition to the growth initiatives we have in the time ahead. All in all, This is a robust financial position for the kid group. That said, I would like to give the word to Marianne, talking about the store portfolio.

Thank you, Mats. We maintain a high store project activity in 2025. During the first quarter, we have completed six store projects in KID and Hemtex in total, and opened one new store in Finland. By the end of the quarter, KID Interes has signed for two new stores and five extended stores in Norway. Hemtex has signed two new stores in Sweden and two in Finland, as well as the first two extended stores in Sweden. Most of these stores are estimated to open during 2025. We are also proud to open four more extended stores in Kidd during second quarter this year, including Alnabru in the Oslo area that opened in April. We continue expanding store size as it remained a profitable strategy. Our assortment needs at least 600 square meters to be displayed in a physical store, which is the foundation for our standard store size. Kid Group is therefore actively working to develop the store portfolio towards the standard store size of approximately 600 square meters by expanding or relocating existing stores in all our markets. Conclusion from previous presentation is verified and the increased store portfolio drives profitable growth. Historically, we see that further potential of the performance in year three of operation. The overview to the right confirms correlation between profitability and size. The larger store size, the larger revenue and contribution per store. We also see that store projects fuel like-for-like growth. Expansion combined with refurbishment or relocation is considered an important growth driver of revenues and profitability. 12 kid interior stores and 13 Hemtex stores were refurbished or relocated with our latest store concept in 2023 and outperformed the remaining store portfolio, as illustrated in the overview at the right. Looking at the Hemtex portfolio acquired in 2019, 61 stores have been upgraded to kid store concept by the end of 2024, which means that 44 stores have not yet been upgraded. Compounded annual growth from 22 till 24 was 10.9% for these upgraded stores compared to 2.6% for remaining like-for-like stores. And please note that several of the already upgraded Hemtek stores will need to move or expand once more. We have already expanded some of the first Hemtek stores that we renovated. So we will continue the store investment program going forward based on the proven return. Compared to 2021, Kidd has increased the average square meter per store in the portfolio by 8.1%. Hemtex has increased the average square meter per store by 17.4%. The figures exclude extended stores in Norway. KID Group is continuing to develop the store portfolio towards the standard size of approximately 600 square meters, in addition to convert existing stores into extended concept, approximately around 1200 square meters. There is a potential for growth in both KID and Hemtex by increasing the number of square meters. And we are approaching the launch of a centralized warehouse in Sweden that will serve further growth. As we mentioned in our fourth quarter presentation, Kidgroups currently operates two logistical setups, one in Lir in Norway and one in Borås in Sweden. In August 2023, KidGroup decided to expand the warehouse facilities in Sweden for the purpose of establishing one central warehouse to handle higher volumes and streamline operations. The new facilities increase storage area by approximately 40% with new automation solutions. The construction was completed according to plan and the 57,000 square meter warehouse was handed over to Kidd Group end of January this year. The focus going forward will be on ramping up the operation and automation solutions for the new warehouse. The common warehouse is expected to be operational mid-2025. As Mats already has explained, there will be non-recurring costs throughout 2025 due to the transition related to scaling costs in Sweden and Norway, moving remaining goods to Sweden and double rental costs depending on the ongoing process of subleasing the warehouse in Lir, which has not yet been settled. So let's wrap up the presentation by looking forward. In the first half of 2025, we have signed 10 store projects in KIDS and six in Hemtex. These projects include a combination of refurbishment, enlargement and relocations. We have ambition to increase number of extended stores in the Swedish market The digital pilot of launching the Hemtex brand to Germany and other EU markets is progressing as planned, with expected launch during second half 2025. Group revenues in constant currency increased by 7.6% in April and 5.2% year-to-date per April, including the effect from the timing of Easter. So, with that said, I think we are ready to open up for the Q&A session now, Mads. Yes.

We have received some questions from the audience online, and I can start reading them. We can start with the first one here from Håkon Kepler. The gross margin dropped 0.9 percentage points year over year. To what extent do you see this being structural versus temporary, particularly given the higher freight costs and campaign driven sales? What's your outlook on the margin recovery in the coming quarters? I think I can start and you can fill in if you would like to, Marianne. We have already explained the margin development, I think, quite well. But to summarize, the freight cost this quarter was impacted by the freight rates we saw throughout 2024. We reported in Q3 that we saw the effect coming in to the cost of goods sold. also impacting our Q4 and finally this also this first quarter 2025 we will see going forward we will not comment but we have the margin of 60.6 which is in line with our financial objectives so the margin this quarter was impacted by the high freight rates we saw throughout 2024. You can see how the freight rates are looking at this point in time when we are going to ship most of our volumes going forward this year. In terms of the outlook, we do not guide going forward, but we have not seen anything that we stick with our financial objective with delivering a margin on the full year within the historical range seen last 10 years back in time. Can you elaborate around housing sale? How housing sale has impacted Kidd historically?

I don't know what's mean with housing sale, Mats. Can you explain?

If you are selling homes, do you have an effect if you have a lot of transactions in the sale of home markets?

We have actually not done any analysis that can see correlation, but I guess there is, but I cannot answer that question actually.

No. Has the fire sale from home and cottage impacted you in any way during Q1?

um we think not very much maybe in some extent but i would say it does not explain any of our figures no no and also to mention that home and cultures in terms of size it's uh yeah not a major impact for us

How did April sales develop through the month and into May?

I think we can answer regarding April. And as we have already said, we are happy with April and we knew that the Easter effect would move some revenues from March till April. So all in all, we were satisfied.

Yeah, and the May figures you will disclose going into July for the second quarter. How was the campaign activity during Q1 versus last year?

I've been the owner of the campaign plan for 10 years now, so I think I can answer that. The campaign plan varies some from quarter to quarter. This year, we had no campaign on the Easter assortment, but we had a campaign in week 13 instead, so that's how we work. The campaign activity during the first quarter was Quite similar to first quarter last year, but as Mats mentioned in the presentation, we had larger volumes that we sold on campaign, especially in January. And that's due to low inventory last year. So not very large changes.

Can you quantify the impact of the temporary logistical challenges seen in Q1? We have an estimate of what we expect, and I think we also may have taken some of the effect out through discussing our April numbers. Can you comment upon the performance of the furniture category in Q1?

Yeah, I can comment that furniture is doing well and is one of our growth categories during the quarter, as expected.

And also, we reported the revenues from new categories launched since 2022 of 39.1. This is not only furniture, but furniture is a major driver of the revenue. How is purchasing prices for goods in Asia developing?

I know you are curious about that, but at the moment we don't see very large changes. So I would say that there is no large change in purchasing prices from Asia, especially China, if that's what you are thinking about. So we don't know what is happening. We just have to wait and see.

And also another question of the lower freight cost. I think we covered that in the margin we started with. So in terms of the store portfolio, only 61 hemtech stores have been upgraded to the kid concept. What is the expected revenue uplift from the remaining 44? And what is the timeline for the full rollout?

Well, who's to start with?

The expected revenues. We do not guide or say anything about that, but we have presented and disclosed the figures for the 2023 projects and the CAGR they had from 22 to 24. And also to bear in mind that the average store size We have more potential in the average store size going to the standard store towards the target of standard store of 600, meaning it's more potential in Hemptex compared to Kidd. But we will not guide or say what we estimate the remaining 44 will be.

Regarding the timeline, it's hard to say. Because it depends on when the right location occurs. We will not just move or expand if we are not at the right location. I cannot answer that more specifically.

Another question regarding the Lier facility. What's the timing of the sublease in Lier? I can start. We have the sublease of Lier. We are in progress, which Marianne said, the process is not settled. We have a lease contract going into 2030, but we are working towards subleasing the facility. and we will come back as soon as we have new information to this process. And then another question about home and cottage. I think we covered that and also the subleasing. We have another question here. What's the average like-for-like growth for relocated and refurbished stores for the first 12 months after project completion? What's the average project spend? That's a good question. I do not think we will share the figures for the first 12 months, but you can calculate based on the figures we have disclosed since we then are showing the 22 to 24 period in time. And you can see the effect out of that for the 23 projects. And the average project spend, that's also I think it may not be very relevant number because that's depending if you are moving or relocating the store or if it's just a refurbishment so that the average spend depends on the case. So what we have disclosed in the financial objectives is more the capex related to the new stores in our store portfolio, where we have three millions of capex excluding inventory to the standard store of 600 square meters and six million to our extended stores of 1200 square meters or larger. Then another question, do you see depreciation increasing further from current levels through 2025? The increase in the depreciation this quarter is mainly explained by investments to store portfolio, the warehouse project in Sweden and other IT initiatives. In addition, we also have the IFRS 16 effect, where KPI, increased square meters, etc., also impact and drive the total depreciation, including the IFRS 16. Through 2025, we will see an effect from the investments we are doing to the warehouse in Sweden. We now are ramping up. So that's the answer to that question. Then I think we covered all the questions. So thank you very much for today.

Yes, thank you. See you later.