Kid ASA

Hello and welcome to this second quarter webcast for Kidd, hosted by Arctic Securities. With me today, I have CEO Marianne and CFO Mats. As usual, please submit any questions you have in the Q&A function on your webcast player, and we will address them after the presentation. So with that, I hand the word over to you guys.

Thank you, Christian. Good morning everyone and welcome to our second quarter presentation. The quarter has delivered consistent revenue growth and an all time high revenue in second quarter, despite some operational challenges associated with the warehouse relocation. And we are pleased with the gross margin performance this quarter The growth is primarily driven by strong performance in Kidd Interior this quarter. And during the second quarter, we have launched a new, in my opinion, state-of-the-art centralized warehouse in Sweden, serving the entire group. This is a major project to carry out and is expected to have short-term impacts on operation and cost, But the new warehouse is a strategic investment for our future growth. Mats will provide with comments and details on the figures later in the presentation, so I will not get into them now. And before I share more about our new common warehouse in Sweden, I would like to show you all a video that was made during the sales process of the warehouse building last year. The warehouse was previously owned by a joint venture where a key group controlled 50% and the warehouse was sold in December 24 to a fund managed by Storbrann Asset Management. And the video shows the warehouse building before the final construction was completed inside. So enjoy. Thank you. I've had the privilege of being a part of KID for many years now and being a part in an incredible growth journey. After several years of strong growth, we now face a clear need for renewal and increased capacity, both within logistics, technology and stores. The transformation is essential for future growth. Our assortment has outgrown our store size, and we have expanded our standard store size over the last year, as you know. We need larger stores to grow further. We have outgrown our warehouse in Norway. 2024 was probably the final year in which we were able to distribute our Christmas assortment through this facility. We need more dynamic and static capacity to grow further. And since the acquisition of Hemtex in 2019, We have been operating with two different warehouse and logistical setups, one serving Norway and one serving Sweden, Finland and Estonia. In August 23, we decided to expand the warehouse facilities in Sweden and establishing one central warehouse for all markets and to increase our storage capacity and to streamline operations. The 57,000 square meter warehouse became fully operational during second quarter. The warehouse is now serving all markets, both across online channels and physical stores. The warehouse was delivered on time at expected cost, and the building has already been sold at a profit. Although all facilities are in place and the project has been delivered, the ramp-up phase takes time. 100 new employees must be trained and it takes time before all employees, systems and new automation solutions all work smoothly and efficiently together. For a temporary period, we have not achieved capacity and efficiency required to meet the full demand from our stores. This has led to lower stock inventory in stores and some delayed online orders. The performance is improving every day, even though it will take some time before everything works seamlessly together and the full potential is materialized. With the launch of a new Nordic warehouse, we have established a critical foundation for increased capacity in the years to come. Some of you have asked how long will it take before we grow out of this warehouse? The answer is we don't know. But what we know is that we have built a more efficient and streamlined warehouse with 40% more storage capacity. And with that, we will be well prepared for the future. To briefly summarize the quarter from an operational perspective, I would like to highlight that category development continued to be an important growth driver. Categories launched since 22 accounted for approximately 25 million in revenues this quarter. Bathroom and outdoor furniture are focus categories. and are standing out as primary growth drivers this quarter. The quarter was positively influenced by the timing of Easter, and we see a notable increase in sale of Easter assortment despite two fewer shopping days. We see growth in Easter assortment sales across all markets, though sales from seasonal assortment still is higher in Kidd and Terrier than in HempTex. Seasonal assortment continued to play an important role in attracting customer attention, driving traffic and refreshing our store fronts. Our spring and summer assortment also delivered strong growth and performance and increased traffic in both physical and online channels this quarter. This quarter has a high level of project activity, completing a total of 15 store projects. And we have successfully completed four extended stores in Kidd and another 11 store projects, six under the Kidd brand and five under the Hemtex brand. We also signed the 15th and final store for extended store for Kidd and Terrier. That's in line with our ambition to establish a total of 15 extended stores in Norway. And finally, I would like to mention that Kid Groups participate in Textilpro AS. It's a company that was founded during the second quarter by Virke and other Nordic retailers to support responsible textile waste management in the Norwegian market. So now Mats, I think you will take us through the financials.

Thank you, Marianne. Good morning, everyone. For the second quarter, reported group revenues increased by 58.6 million compared to last year. This represents an increase of 7.3%. I will come back to the highlights for the segments shortly. The revenue growth is considered well consistent given the operational impact from the transition of the warehouse as already mentioned. Please also bear in mind that the positive revenue growth and the revenue development this quarter comes on top of the high growth base from last year. During the quarter we observed in general an increase in terms of number of transacting customers to our physical stores in both segments and online in Hemtex compared to last year. Additionally, it was a positive contribution from the basket size in Kidd Interior. The online revenue share increased by 0.1 percentage points to 12.2. And looking on the click on collect, the share increased by 1.5 percentage points to 18.8 this quarter. In terms of categories, we continue observing a positive underlying development across the major categories. And I would like to point out that curtains, bathroom, outdoor and garden furniture standing out as important drivers this quarter. For kid interior, this brand segment performed particularly well, and I'm pleased to report a total revenue growth of 7.1%. The revenue development is driven by increased number of the transacting customers in physical stores, partly offset by decreased numbers online. Additionally, we had a positive effect from the average basket size. As Marianne mentioned, due to the timing of Easter this year, revenues from Easter seasonal products positively affected the revenues this quarter, partly offset by the two less shopping days compared to last year. Hemtex delivered a reported total growth of 7.7%. And we see a significant currency effect in the consolidated figures, where the revenue growth in local currency and constant currency was 1.7%, mainly driven up by online. The revenue development in Hemtex was positively impacted by a number of Transacting customers in physical stores and online partly offset by decreased average basket size across the sales channels due to mixed effect. Overall, we are satisfied with the second quarter given the circumstances and the warehouse transition, and we have a total revenue growth of 7.3%. For the gross margin, we delivered a robust margin of 62.3 on the group level. We can see a similar development compared to last year in both Kidd and Hemtex. The gross margin is strong in a historical perspective and the development this quarter is mainly due to and as a result of higher share of freight in the cost of goods sold. As a consequence, consequence of the freight rates observed throughout 2024. Finally, we did the early price adjustments last year to address these higher rates, which were elevated due to the unrest in the Red Sea and Gulf of Aden late 2023 and in 2024. The implemented price adjustments last year had positive effect on the reported gross margin. The group gross margin of 62.3 is considered robust and is well in line with our financial objectives. Reported operating expenses increased by 13.7% in this quarter compared to last year. While this may appear high, it's important to note that the warehouse transition has been one key driver this quarter where we invest in future growth. Along we also have some other underlying factors that explain this increase. Employee benefit expenses increased 19.1 million and the increase is a result mainly of last year wage settlement and salary increases to our employees. We have an impact from new stores, the store project and increased hours in the logistics following the warehouse transition. In terms of worked hours in our like-for-like stores, we have tight control and the development is affected by new stores and the high level of store projects this quarter compared to last year. As you said, Marianne, we had 15 this year compared to six last year. This is important initiatives to drive future like-for-like growth. Finally, in employee benefit expenses this quarter, we had also a significant currency effect of 4.3 million. Reported other operating expenses increased by 22.6 million. An increase is largely attributed to this warehouse transition. In addition to effect from increased floor space in our store portfolio and last mile distribution of furniture, shop-in-shop and online orders. The ramp-up period of the warehouse in Sweden is driving hours in our logistic operations, supported by external employees and workforce that will gradually be converted to permanent and owned employees. Time spent is primarily linked to onboarding employees to the warehouse in terms of processes, systems and automation solutions. In addition that we have moved goods from the warehouse site in Liget to warehouse site in Viared. These activities are temporarily reducing productivity and efficiency this quarter. During the quarter we had non-recurring operating expenses of approximately nine millions where this is booked as other OPEX and rental costs with reference to the previous communication of the approximately 30 million we will have for in extraordinary or non-recurring operating costs for the full year 2025. Finally, we also had significant currency effect on the other operating expenses of 3.6 million compared to last year. To summarize, we have a consistent revenue development with increased revenues in both segments across all sales channels. We have a decreased gross margin mainly due to the share of freight in the cost of goods sold, but strong in historical perspective and well in line with our financial objectives. and the OPEX base as described impacted by the warehouse transition. This resulting in an EBTA of second quarter of 189.1 million. Below EBTA, I would like to highlight two following additional one-off items amounting to 33.8 million this quarter. This comes in addition to the 30 million in non-recurring operating expenses. The first of the two items is an impairment of 25 million that was made related to the warehouse in Ligir and is a non-cash item. The warehouse in Ligir is now empty. It's not in use and we have been in the process of subleasing the warehouse since early 2024. We had a principal agreement with one potential tenant, which ultimately unfortunately stalled due to external factors this quarter. As the subleasing process taking longer than anticipated, an impairment of 25 million has been recognized this quarter on the right of use asset, and it's a one time item. Additionally, one of realized effects of 8.8 million was recognized and is related to the changes in the KIB Group's sourcing and currency hedge setup. The effect is linked to the currency hedge and remaining USD balances in Hemtex. This has been reported as financial expense. In terms of cash flow, I would like to highlight the following items and the cash flow from operations was positively impacted this quarter by networking capital changes. The investments, you can see it's of 98 millions that is related to store projects in Norway and Sweden and Finland in addition to the warehouse expansion project in Sweden. and some IT and other IT projects. Cash flow from financing is explained by lease payments, net interest expenses, use of overdraft facility and revolving credit facility. Additionally, we had a dividend payment of 5 kr per share in May this year. The cash flow follows cyclical historical pattern for the kid group at the end of the quarter we have the cash and available credit facilities of total 265.5 million excluding ifrs 16 the net interest bearing debt was 964.7 resulting in a financial gearing ratio of 1.65 at the end of the second quarter all in all a robust financial position for the kid group. That said, I leave the word to Marianne to give some status on our store portfolio.

Okay. Thank you, Mats. This quarter, we have had a really high store project activity, fueling future like-for-like growth. During the second quarter, we had 15 store projects compared to six last year. In the first half of this year, we have had 21 projects compared to 16 last year. And as I already told about expansion and the need of larger stores, we continue to develop our store portfolio towards the new standard store size 600 square meters, and that we need to have enough space for the whole product range. We have outgrown our smaller stores. We know there is a potential for growth by increasing the number of square meters in both Kidd and Hemplex. During the first half of 2025, we opened three new stores in Finland in line with our Finland ambitions and towards our 320 stores in total. Four extended stores have been opened in Norway this quarter, And we look forward to open the two first extended stores in Sweden very soon, one in the fourth quarter and one during first quarter next year. And we have reached the final slide, I think, and it's time to say a few words as we look ahead. In the second half of 2025, we have lined up five store projects for KID and three for Hemtex. These include a mix of refurbishment, expansion and relocations. On top of that, two extended stores, one in Norway and one in Sweden, are scheduled to open. We are also moving forward with a digital pilot to launch the Hemtex brand in Germany and other EU markets. We will mostly most likely go live during the fourth quarter. In the coming months, our main focus will be to continue scaling up operations in the new warehouse. We are working on fine-tuning operations and implementing more automation solutions to boost capacity and efficiency ahead of peak season. We expect to have somewhat low store inventory throughout the third quarter, but we are working to catch up and expect normalized stock levels by the end of the quarter. And finally, I would say that we are now looking forward to welcoming the autumn assortment into our stores. And then I think we should be ready for opening the Q&A session.

All right. We've got a couple of questions here coming in from your covering analysts. So we'll start with Håkon Fuglø at SEB as he was first. First question, he has a couple of ones. Can you elaborate on the strong gross margins in a quarter? Is this a result of the lower assortment availability?

The gross margin is historically stronger in the second quarter and looking back we had a decrease of the 0.9 percentage points this quarter compared to last year and the development is mainly due to the freight part of the cost of goods sold compared to last year.

And the second question also on the lower availability of assortment if it impacted sales negatively in the quarter.

I will guess it had some impact and therefore we are satisfied with their revenues this quarter despite that we have seen some low stock in our stores during this quarter, yes.

Moving on to the third question and on OPEX maybe for you Mats. How did underlying OPEX develop in the quarter if adjusted for the record high store openings and refurbishments over Q2 and Q3?

It has affected the OPEX of course but we do not communicate the underlying growth but the growth in the other OPEX of the 13.7 is highly affected by the warehouse transition, the significant currency effect, and also the store projects and new stores we have opened during 2024 and this year, year to date.

And last one from Håkon, at least for now. Have you done some sample tests for Hemtex online in new markets and what is the customer feedback?

We have not done that yet, and so there is nothing more to comment on that, I think.

Okay. Then we move on to Ole Martin Vestgaard at D&B Carnegie. Should we expect some more costs related to the warehouse transition in Q3? What is left?

As we have communicated previously, we will have other operating expenses of approximately 30 million for the full year that is related to double rental costs with the two warehouses we have now. will be some ramp up and scaling up and scaling down costs and we reiterate the 30 millions as we have communicated earlier. What comes in addition this quarter, it's more like technicality of the 25 million of the impairment of the right to use asset for the warehouse in Lyer in addition to the realized currency loss compared or related to the USD balances in HEMTEX going out of the accounting policy.

Second one from Ole Martin. Has the sales trend in Q2 continued during the summer? Yeah, I can take a follow-up after.

I don't think we comment upon the third quarter.

That's fair. And could you strip out the Easter impact on sales in the second quarter?

In figures, no. But we can say that we had a positive impact from Easter in the second quarter and a negative impact in the first quarter. And that's how it moves between quarters, depending on when Easter is.

And then the last one from Ole Martin. do you expect the low inventory in Q3 to impact sales?

It's hard to say, but probably some.

Then we move over to Petter Nystrøm at ABG. You mentioned that the sublease for your warehouse in Lier has been delayed. Is this expected to be resolved from Q3?

I hope we can bring positive news, but We are working on the process on a weekly basis, daily basis to solve it and hope to bring good news when we report the Q3 in November.

And then another one from Petter. Yeah, you already have this one on the inventory for Q3. That's another one on the low stock level. Again, please submit any questions you have. We'll wait a bit more. I can take one from my side. Do you have any color on when we can see the OPEX growth slow down from the refurbishment and new store openings or should we just use your business plan to model that out in the future?

I think we have We have the ambition of the total stores, right? Of the 320 stores. That will take time. But we have the recent years done approximately around 30 store projects on the full year basis. I think that is kind of a fair assumption going forward.

Another one. You mentioned some changes in basket size and did this impact the gross margin and how do you think the underlying gross margin developed in Q2 if you strip out kind of the external factors of currency and freight cost?

I don't think the basket size is directly linked to the gross margin development. The basket size is due to the mix effect. And the Easter, as Marianne mentioned, is seasonal products, is one example of the seasonal products comprising accessories. And the items have a lower value, meaning that the basket size will decrease.

It seems that there are no further questions. So with that, we've got one in here now. How does Hemtex perform in Finland and Estonia? Any differences in growth and margins compared to Sweden?

We do not usually share or we do not share the details on the market level on a quarterly basis, but what we have said is that we are satisfied with the development in the two markets.

Okay, with that, I think we're finished. Marianne, do you have some final remarks?

No, I think we're good.

Thank you so much for coming and thank you for listening in everybody.

Thanks.