Boozt AB (publ)

Good morning everyone and welcome to our Q2 call 2024. Let's go to the first slide and it will likely not come as a surprise to you that the market remained challenging in the second quarter but still we managed to increase revenue with 11% and maintain a very solid margin. The growth for the quarter was driven by a good reception of the spring-summer collection, which was certainly helped by the improvement in the weather that we saw in the Nordics during April. The warm weather supported both Boost.com and Boostlet, which both did well, growing revenue with 10% and 13% in the quarter. The growth was to a large degree driven by an increase in new customers. and looking isolated at the quarter, almost 300,000 new customers bought from our tour shops, which I believe speaks volumes of our ability to fare well under difficult circumstances. This also indicates, in our view, that even though consumers are holding back, when they buy, they buy online. It's very encouraging to see that our growth has been driven by an increase in active customers. Similar to what we saw after Q1, campaign goods continued to be more of a challenge to get access to. Inventories out there, they are not in excess, like we saw last year, and this impacted our ability to offer really good deals to our customers. It's quite difficult for us to quantify the impact, but it's something that holds back growth slightly as well as it puts the gross margin under pressure. Looking across product categories, We had a really good quarter with growth in each and every quarter category, again, underpinning the significance of our department store approach. Supported development, we've seen an increase in active customers shopping from more than one category of more than 100,000 customers compared with last year. And this is to a large extent driven by our older customer cohorts embracing more categories. The share of multi-category buyers is unchanged at 51%, but the development is slightly held back by the significant inflow of new customers, and we know that they initially often only buy from one category. Customer satisfaction, which is the heart of what we do, remains best in class. Net promoter score was 75 and slightly up, while our trust pilot was 4.4 compared with 4.5 last year. Profitability remains solid with an adjusted EBIT margin of 4.9%, resulting in an adjusted EBIT of 92 million SEC. The margin was a bit down compared with Q2 last year, which was mainly due to slightly higher fulfillment costs compared to last year. This is a consequence of the implementation of what we call transfer cells in the fulfillment center. This is the project where we combine and connect our three order store cubes. So even though we see this as a kind of a game changer in our fulfillment operations, we have spent considerable resources on implementing and testing. We decided to expense the cost, which then has had a temporary impact on the fulfillment cost ratio. With the two first quarters behind us, we believe it makes sense to narrow our outlook for the year based on performance so far, as well as the fact that the trading environment remains challenging We now expect revenue growth to be in the range of 7% to 11% from previously 5% to 15%. And the adjusted EBIT market is now expected to be between 5.2% and 5.7%. And this is now from 5.2% to 6%. Finally, our cash position remains solid. And during the quarter, we announced the decision to start a new share buyback program. And this means that in the next year, we will repurchase own shares of up to 200 million SEC. So please turn to the next slide. I am very happy to share that we managed to increase our active customer base mainly by attracting a large number of new customers. The Boost.com active customer base increased by 7% and Boostlet by 16%. So in total, we were able to attract almost 300,000 new customers in the quarter. Even though we are focusing a lot on getting our customers to buy into our categories, we still want to increase our active customer base. And in an environment with quite a muted consumer sentiment, we believe it's a testament of our strength that we are able to attract almost 300,000 new customers. And our conclusion based on that is that even though customers are holding back, the consumers that are in the market they are continuing to go online. So the online penetration continues to accelerate in our view. The increase was broad-based across both platforms as well as regions. Our biggest region, the Nordics, increased around 8%, driven by an increase in active customers in all countries in the region. The biggest contributor to growth was Denmark, which increased 10%. Active customers increased close to 40% in the rest of Europe, mainly driven by Germany and the Netherlands. Especially for Boostlet, these markets remain a strategic focus as we see interesting opportunities in the Boostlet segment for the region. Furthermore, Boost.com has also improved in Germany. following several adjustments on the site, among other things, the implementation of return fees in Germany. But for Boost.com in Germany, I want to emphasize once again that we continue our principle with profitability on every order. So it's not a case of kind of empty calories growth in Germany. Finally, active customers in the Baltics continued to increase significantly and were up around 35% for both Boost.com and Boostless compared with last year. This is obviously from low levels, but with a continued high average order value on par with the group, we see decent profitability as well as strong growth opportunities in the Baltics. Let's go to the next slide. Growth in the quarter was board-based and supported by all categories. We don't intend to show this development every quarter, so this is kind of a one-off, but we want to highlight it for this quarter as we think it helps to illustrate the power of having more categories to support the business. I think that the 11% overall growth in a very muted market driven by the categories highlights the key advantages of the department store model. Despite a cautious consumer in general, the women and men's categories were up more than 5% in the quarter. These categories represent around 60% of our business and are of course still the main drivers of traffic and revenue to our two sides. However, the sports category and the kids category, they've also reached a size and awareness level that is beginning to make them shopping destinations on their own. We are not there yet, but nevertheless, they both represent more close to 15% of revenue each, and they both increased more than 20% for the quarter. And finally, Buda and Home, which both are some 5% of revenue, are not quite there yet in terms of being a destination on their own, but we are gradually getting there and we see great potential. So bottom line is that all categories perform and the numbers of customers buying from more categories is going up. And the latter being important both in terms of higher customer loyalty as well as increasing spend per customer and average order value. So please turn to the next slide where I'd like to hand over to you, Sandra.

Thank you. So if we start by looking at the next page, we see the overview of the financial performance in the second quarter and the year to date. Net revenue growth was, as Herman mentioned, 11% in the quarter, also in local currencies. Growth was particularly strong in April and May, but less so in June. The slowdown was weather-related, which impacted the attractiveness of our spring-summer collection. Limited campaign buys also had a negative effect on growth compared to last year. As Herman just talked about, we saw growth in all categories in the second quarter – While growth numbers are higher in the newer categories, we are very satisfied with the sales growth in both the women's and the men's category as they remain the core of our business. Looking at the geographical markets, growth was strong across our core markets where growth in Sweden was 11% and in Denmark 6%, a clear improvement from the first quarter. Finally, growth in the second quarter was positively impacted by the timing of Easter, Easter is normally negative for sales development and impacted the first quarter negatively this year and the second quarter last year. The promotional environment continued as consumers remained price sensitive. During the second quarter last year, we believe that the promotional environment was more driven by high inventory levels in the industry, something that we believe is somewhat more settled at this time. For the first half of 24, net revenue growth was 9% also in local currencies. The gross margin was 41.9% in the second quarter and decreased 0.4 percentage points compared to last year, and that was driven by the lower level of campaign stock. For the first six months of 24, the gross margin was on par with last year at 40.5%. The adjusted EBIT margin of 4.9% was 0.2 percentage points lower than last year, and that was driven by the lower gross margin as well as the higher fulfillment cost ratio. For the first half of 24, the adjusted EBIT margin was on par with last year at 3.2%. So if we turn to the next page, we see the development of our two segments, Boost and Boostlet. So if we start with Boost.com, Net revenue growth was 10%, with strong growth in our core markets, Sweden and Denmark, which both grew 7% in the second quarter. The growth in the Swedish and the Danish market was an improvement compared to the first quarter, where we experienced more of a flattish development. Growth outside of the Nordics was 34%, driven by Germany, but we also saw continued good developments in the Baltic. Revenue growth was mainly driven by the increase in active customers. In the last 12 months, 2.7 million customers shopped at Boost.com, which is to be compared to 2.5 million at the same time last year. If we look isolated at the second quarter, the number of active customers shopping on Boost.com increased by 8%. Growth on Boost.com was also positively impacted by the growth in the average order value of 916 Swedish kronor, a 3% growth compared to last year. True frequency that displays the number of transactions per customer excluding new customers was slightly up compared to last year to 7.1 from 6.9. The adjusted EBIT margin decreased with 0.2 percentage points to 4.7% due to the lower gross margin and the higher fulfillment cost ratio previously mentioned. If we move on to boostlets, we saw net revenue growth of 13% in line with the growth in the first quarter. Just as in the first quarter, growth was limited by the lower level of campaign stock, while the number of new customers fueled growth. Growth in active customers that now totaled 876,000 increased 17% in the second quarter. Growth in the Nordics was 9% and growth outside of the Nordics was 42%. We continue to invest in building a relevant and price attractive product assortment on Booslet and we believe that this also supported growth in the second quarter. However, we also see that the typical Boostlet customer continues to be pressured from the decline in disposable incomes as the frequency of buying decreased slightly compared to last year. We saw this behavior also in the first quarter. The average order value continued to increase on Boostlet. For the second quarter, the AOV was up 5% to 919 kronor. The adjusted EBIT margin for the quarter was on par with last year at 5.9%. So if we move on to the next page, we see the development of the cost ratios in the second quarter. The fulfillment cost ratio of 11.4% increased 0.2 percentage points. This increase was mainly driven by the temporary use of manual hours during the ongoing installation of transfer cells previously mentioned. The implementation of transfer cells will increase the level of automation for consolidation of orders where one order is picked from more than one auto store cube. We expect that this temporary effect to stop during the third quarter. Going forward, we expect to see cost efficiencies as manual minutes per order is expected to decrease significantly. The transfer cells should be fully implemented in the first part of cube form. Aside from this effect, we continue to see positive development in the cost ratio as we improve processes, continue to focus on cost control and invest further in building strong leadership and foster a performance-driven culture in our fulfillment center. Meanwhile, we also see continued improvement in distribution costs. This is related to the more disciplined setup where we guide customers to the optimal carrier from both a cost and a service alternative given the customer's preference and geographical location. The marketing cost ratio for the quarter was largely on par with the same quarter last year at 10.8%, that is to be compared to 11.1% last year. We continue to gain benefits from loyal customer cohorts, both from higher share of returning customers along with an increased net spend. The loyal customers tend to come as direct traffic to a higher degree than prior periods, where new customers are recruited through performance media. In the second quarter, we experienced high competition in the cost per click. However, our marketing mix of online, offline, and relevant sponsorships enabled us to leverage investments, and we continued to stay relevant and attractive to the Nordic consumers. The adjusted admin and other cost ratio of 11.9% corresponds to a decrease of 0.4 percentage points driven by scale efficiencies. The depreciation cost ratio of 3.6% was roughly on par with last year's 3.7%, as expected. So moving on to my last slide, where we have an overview of cash-related KPIs for the second quarter, we see that networking capital share of last year 12-month revenue increased from 11.1 to 12.2%, driven by the higher inventory levels to support continued growth for the year. The absolute inventory level of 2.4 billion compared to 2.2 billion last year is fresh and relevant for the upcoming season. Inventory as a percentage of revenue declined from 30.8 to 29.8 which is mainly a reflection of the good sell-through of the spring and summer collection. Free cash flow of 90 million improved compared to last year's negative 5 million. The improvement was mainly driven by a more favorable development in operating working capital compared to last year. For the first half of 2024, free cash flow was a negative 595 million which is an improvement of 137 million compared to last year. Cash flow from investing activities was 48 million in the second quarter and is mainly related to the investment in transfer sales for the consolidation within the fulfillment center. The net cash position of 297 million to be compared to 430 million last year is affected by the repurchase of shares where we have bought shares for 185 million since our annual general meeting in 2023. The cash position at the end of the second quarter was 725 million. And this ends the financial overview. So back to you, Herman.

Thank you, Sandra. As mentioned initially, we have decided to narrow our guidance for the full year. This is, of course, a natural consequence of us having more than seven months of sales in the books. Now we expect a revenue growth of 7 to 11% compared with previously 5 to 15%. We believe that given the circumstances, we have delivered a solid first half of the year. 9.9% growth is strong, which gives us confidence in raising the lower end of the guidance from 5% to 7%. At the same time, we don't think it's realistic to get 15% growth. But still, you will notice that the midpoint of the range is slightly down from 10% to 9%. The change is mainly a reflection of the fact that we continue to operate in a very challenging trading environment. On the one hand, we don't expect this to change dramatically in the short term. The trading environment will probably continue to be challenging due to the continued muted consumer sentiment. And on the other hand, and probably mainly, availability of campaign goods is still limited compared to earlier. You could say that campaign goods are kind of icing on the cake for our business, and it is still uncertain how much we can get our hands on. This probably will have an impact on the growth for the second half as well. What we've seen earlier is that if there is a surplus of goods in the markets, it takes some years for the market to adjust. This is what we saw in the aftermath of COVID. If there's an undersupply, as we see now, our experience is that the market reacts much faster. So we see the lower availability of campaign goods as a more temporary issue. We also changed the expectations for the adjusted EBIT margin to be in the range of 5.2% to 5.7%. Previously, it was from 5.2% to 6%. This is still a relatively broad range, but the result is highly dependent on the level of promotional activity as well as the customer's willingness to buy in the second half of the year. The updated margin range also indicates that despite a difficult year, we still expect to end up with a margin that is better than last year. And when the tide turns we will be well on track to reach our target of an adjusted EBIT margin of 10% in five years. So please turn to my next and last slides. As we have mentioned earlier, visibility going into the second half of the year is to some degree limited. The consumer sentiment is still quite muted and recent macroeconomic developments do not provide a much clearer picture. We don't expect it to become worse, but we foresee a volatile trading environment for the rest of the year. Our main objective has always been to run a tight ship and to have the right lineup for when the tide turns again. We have a very tight cost control with a value chain or cost structure, if you like, that probably is best in class in our industry. We have a very healthy inventory that is not clouded by all goods that need to be moved before we focus on the current season. With the investments that we've made and are making in our warehouse, we have built a very efficient fulfillment machine which allows us to scale without losing productivity and without having to invest as much as we previously thought. Our categories provide us a natural hedge as we are not dependent on a single category. So we are seeing that when fashion is slowing down, other categories are leading the growth. And finally, we are cash rich, making us the masters of our own house. There is no doubt that it is only a matter of time before the tide turns. We don't know when, but when it happens, we are ready to take more than our fair share of the growth in the market. So this concludes our presentation. So operator, will you please open up for questions?

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Good morning. Hope you can hear me. There's some sort of echo when I speak. We can hear you. Okay, good. Just following up on what you ended up saying when it comes to campaign availability. being still sort of limited as you go into the second half of this year. And you also said that that had a negative impact on the gross margin too. Should we expect the same negative gross margin and the gross margin should be down year-over-year in Q3 on the back of that?

Well, I'm not going to comment on the gross margin targets for a specific quarter, but obviously it impacts, and I think we have quite a lot of mitigating factors. We are stocking up on never out of stock items, and I think we have a good one. But the risk is obviously in the gross margin when the trading environment is very tough and there's limited campaign buys. But I think the efficiencies we have I think it's reflected in our guidance, but there is a risk on the gross margin.

Okay, thank you. And then just jumping on to what you mentioned in terms of extra cost-related fulfillment in the court, you said that when it comes to the testing of the outdoor, that will be finished by the beginning of 2004. Is there any chance that you can quantify the impact that you had in Q2 and what should they expect from Q3?

The effects that we had from that testing, also we had some other maintenance costs that were temporarily inflated. If we take those effects away, we were better than last year. So that you can conclude. And I think at the end of the year, we expect that the full year fulfillment cost ratio will be better than last year. So we have this effect, but we are very confident with what we're doing and the effects of the gains that we're going to get from that.

Okay, good. And maybe coming back to when we started this year, Herman, you mentioned that you had this target of reaching 10% in 2028, and you wouldn't be surprised if it wasn't in your development to get there. Of course, looking at the first half of this year, we're still very short into that period. You had the same margin that you had in QH1 last year. And you take down the outlook when it comes to stability. What do you think happened during this past six months that you didn't expect at the start of the year?

I think I said that it would not be linear. Okay, maybe we are going to be wrong then.

That was my impression that we should expect it to be back and loaded.

Not all, but it's going to kind of... We don't expect it to be very back and loaded, but it's still kind of... It will be a bumpy... Right, you could say so. You know, still the midpoint of our guidance is down 0.1%, so it's not that a big adjustment. What we're just saying is that we don't expect to get the growth of 15%, and of course, if we have had a 50% growth, then EBIT will follow. We think, as we've said before, that in a muted consumer sentiment, where we have bought the goods, we need to make sure that we don't have too much stock. So we have to take the liberty of clearing, which might mean that the margin would come at the low end. But again, our best guess is around this 5.5% plus minus for the full year, which is an improvement in a trading environment that is still quite challenging. Actually, to be honest, I don't think much has changed. And again, we're only like six months into this five-year journey, so it's very early to conclude.

Yeah, sure. I appreciate that. It's only six months. Okay, good. Just a final question on the competition. If you look at one of your main competitors in the Swedish market, they have improved delivery times quite a lot recently in December. Has that had an impact on your offering in the Swedish market?

No.

Good, good. Thank you, guys. That's all for me. Thank you.

The next question comes from Benjamin Wohlstedt from ABG Sundal Collier. Please go ahead.

Good morning, Sandra. Okay, there's Nick as well. Herman, you write in the report about better sales momentum and weather improved. To be perfectly clear here, do you mean improve each friendly or are you talking about something else? And what time period are you referring to here?

Can you say that again?

Which part? All of it. All of it.

About, you know, about the weather. I just didn't understand what you said.

Yeah, you're right in the report about better sales demands, weather improvements. To be clear, it's improved weather, warmer and drier.

I think when we went out of Q1 we said that the spring had been dismal and typical lousy Nordic weather. April was good, spring came, summer came, continued to May and that is always good for our sails when the sun shines, so in the spring. Of course now we're hoping that it gets cold fast. But as long as the weather is true to season, then we are quite happy.

Perfect. And a follow-up on that one. I also want to ask about the year-on-year comparable in terms of promotion and gross margins into Q3. Last year, the start of Q3 was not supportive of summer season product sales, I believe. It was very wet and very cold. Is this something that impacted the promotional landscape last year, you think, with competitors struggling to get rid of the last part of summer season assortment? And would this mean a normalized weather pattern could be positive for you both in terms of sales and possibly also gross margins through a lower campaign intensity?

Oh, that's a difficult question. You cannot always blame it on the weather, you know, but, you know, there's so many factors kind of coming into play with the consumer sentiment. Last year, you probably had a lot of clearance in the market because you had overstocking in the market. So it had an effect. This year you probably have kind of understocking in the market, but where the consumer is more conservative or more cautious. So what we always hope is that we are true to season, so that the spring starts when the spring should start and that the fall starts or winter starts when it's supposed to start. We are not looking at the long-term weather forecast, but of course, if it's an Indian summer in September, we know that will drag out the autumn-winter sales. But I think that we're getting to a more normal post- or pre-COVID environment where it's consumer sentiment, it's the offers, it's the market that is deciding. So I don't think that there are so many excuses to be said.

And to be honest, the key to success is stay very close to the market, listen to what the customers want and what they need, and having the right offer and the right prices. It's just as easy and hard as that.

Perfect. Thank you very much. I think those were all of my questions for now. I'll get back in the queue. Thank you. Thank you.

The next question comes from Nicholas Ekman from Carnegie. Please go ahead.

Thank you. Yes. Can I follow up a little bit on the kind of current trading discussions here, weather discussions? When you said sales were slower in June, have you seen any change so far in July, August, given that we're halfway through the quarter? And I'm asking this specifically because the midpoint of your guidance here requires a slight pickup of growth in H2, even though you face significantly tougher comparisons in the second half. So I'm just curious if you've seen anything here in the start of the quarter that gives you confidence about this new updated target.

Well, we don't comment on months. You know that we don't comment on current trading like that. But June was cold and July and August has been more summer-like, I guess. But it's all implied. We know that we're very strong in Q4. We know that that's when we're super competitive. But Q3 is also an important quarter, obviously.

Okay, fair enough. And also following up on this discussion about campaign buys. I realize it's difficult to exactly quantify here, but I mean, where are we now? Are we looking at back to normal levels of campaign buys from having been at exceptional levels in 23 or are you below normal levels at the moment? Is there any way to quantify where we are in this cycle?

I would say that we're below, and that's also why we think there's an understock in the market. And it affects us. We're stocking up on never-out-of-stock items, and that can compensate for one part, but not fully. However, going into the new... After this season, this is something that we take into account since we know that that availability might continue. We don't know that, but then we can take that into account. But that was not something that we were aware of when we made the big buying for the AB season.

Okay, clear. Thank you. Also, I'm curious, you have in the last 12 months now, you've had 97 million in one-off costs. That's a rolling 12 months. I'm just curious, are there any of these costs that are not related to share-based compensation? So are there any real one-off costs or should we really view these as more staff-related costs or staff-related expenses?

I do not think that there's anything else what I can remember, but we need to double check, but I don't think so at least. But I'll get back to you on that.

Okay, clear. Okay. And also buybacks. You announced the ambition to resume buybacks. When do you expect to start this? Because I think the press release was out late June and I haven't seen any resume buybacks.

Yeah, we've been in a selling period and we can't buy. So it will... probably start soon. So we are now going to do the buyback and we will do it gradually as we progress towards the next AGM.

Okay, that's very clear. And just finally, these extraordinary fulfillment costs, the temporary costs you talked about that will continue in Q3, do you expect them to be of similar magnitude in Q3 or higher or lower than what you saw in Q2?

I would say a bit less.

Yeah, we took the bulk in Q2.

Okay, very clear. Thank you. Thanks for taking my question.

Thank you. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Aurora Tigerskiold from DNB Markets. Please go ahead.

Hi, thank you for taking my question. Just a quick one. I was wondering if you could provide some further flavour on your inventory position heading into Q3. given high season Black Friday and so on.

Yeah, inventory position is actually quite good. We sell through has been good for the spring summer, so we don't have any old stock issues so we can focus on the new season and and we have had a lot of in deliveries during the summer so so kind of the potential supply chain issues with with containers having to to sail around africa has not affected us and we don't expect it to affect us so we our kind of our stock position going into the into the last four months is actually quite solid. Of course, we would have liked to have more campaign goods, so ideally it would have been slightly higher, but which probably also is why we have a kind of a ceiling on the growth, but I think that we are quite well prepared for the next four months.

Okay, great. Thank you so much.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay, thank you for the questions, good questions. This concludes the call and I guess we will meet you out there in the near future. Thank you very much and have a good day.