Clas Ohlson AB (publ)

Good morning, everyone, and welcome to the Q1 report. My name is Kristoffer Tornström. I'm CEO and I'm here with Pernilla Walfridsson, CFO. So we'll cover a short presentation before we move into the Q&A. And I'll cover the business update and events after reporting period and summary. And Pernilla will take us through the financial developments. So headlining the first quarter and also August, we have started the year well. with 8% organic growth and 9% like for like. We've also seen improvement versus last year in gross margin and cash flow. We're ending the autumn now with a healthy and balanced inventory, which is below last year's levels. Our cost saving efforts are progressing according to plan, and we believe we're establishing a new base. This will be extremely important as we move into the fall. Macro is still very challenging. We need to be fast and flexible, and we need to ensure that we stay very cost effective as we see obviously inflation hitting us from a lot of different areas. Looking at the growth in the first quarter, it's very assortment driven. Across our five consumer missions, the prioritized destination categories, all categories are actually driving growth, which is encouraging. And we also saw continued growth moving into August with 14% organic and 14% like-for-like. Our ambition or our clear objectives are to grow 5% organic per year at the 7 to 9 emits margin, and that remains moving forward. And we also want to be industry leading in sustainability and deliver on our 2045 commitments. So those two areas are our key objectives moving forward. The short view on what's going to drive growth and profits. We have three main growth drivers that we're focusing on. The first one is an assortment, making it relevant 12 months a year. And the second one is building a profitable and growing online business and then also expansion of our store network so those three growth drivers will be enabled by efficient customer communication competitive cost base and the execution of our sustainability agenda so just a few quick words on each of the growth drivers as we're closing out the first quarter so I said I'll come back to the assortment in a second but all the priority categories have been driving growth the summer season in terms of seasonal products was actually fairly weak uh so it was very broad based based business growth during the summer in terms of our online business we are doing everything to focus on our own uh ecom channel uh that has now surpassed a billion second sales and we saw nine percent growth in the first quarter obviously the ambition is to grow total class also but we do believe that this proportion of growth will continue to come from our own ecom In terms of the expansion of the store network in the quarter, we still had fewer stores than last year, but we also opened one new store in Norway, and we are on track for the expansion of the net 10 stores this fiscal year that we announced during the last quarter. When it comes to efficient customer communication, a huge enabler for us is our club class membership program. And that is continuously progressing. And we're also doing a fairly good job in terms of performance marketing and online communication during the quarter. Cost base, we'll come back to the details, but we have done a lot of work to reduce complexity, simplify all the ways of working. and thereby also a fairly significant reduction in terms of office functions and white collar employees. So we're actually entering the fall now with approximately 25% fewer office colleagues than we were one year ago. So that means that we're on track in terms of realizing the savings that we have been announcing of the last few quarters. And obviously that is going to be important given the inflation we see in rent, salary increases etc. In terms of our sustainability agenda obviously we want to sell a lot of need-based products that makes a difference for our customers both in terms of their economy but also in terms of sustainability and being able to lead a more sustainable life and as part of that we are increasing our focus on spare parts to complement our assortment and we have seen nice growth also on spare parts during the quarter. And we were also recognized on Albright's green list during the quarter. Taking a second, just talking a little bit about our consumer missions. This has been a focus for us over the last one and a half years. And it's pretty clear that we want to be a unique combination of those five consumer missions. We have seen over the last year or two that Tidy Up Your Home and Light Up Your Home, those two missions have been driving growth. And we've also talked about reapplying that playbook onto the other consumer missions. And the encouraging fact during Q1 and also August is that we start to see growth also in Connect, Fix, and also Conscious Home Environments. Right now, all the five consumer missions are driving growth, and that is crucial for us to ensure that we keep a balanced assortment while, of course, driving relevance across each area. We've done a lot of new product launches into each of the missions, and there are more news lined up for the autumn. Apart from that, of course, we want to work hard in terms of seasons, but we also want to be less dependent on the seasonal swings. But of course, we are entering the Christmas season where we are a destination and we want to continue to be a destination. Spare parts I've already mentioned, and that is a big part of also fulfilling our sustainability ambition. On top of the five missions, those are the key things that drive traffic. of customers into Klaus Olsson. We also want to complement that with a consumables assortment, and we have seen that also performing fairly well across the first quarter. We know that consumers are cautious. Consumer confidence is recovering a bit, but they're still on low levels, and we need to do everything to protect our price position. We do measure our price perception, and we benchmark ourselves with low-price competitors, and we're going to continue doing so. So it's crucial for us to have the right price at the right quality product in the market and continuously building price perception. So obviously, we are humble also moving into the fall now, given the consumer sentiment. So with that short update, I'll hand over to Pernilla to take us through the financial development for the first quarter.

Thank you, Kristoffer. And good morning to you all. Let us take a deep dive into the Q1 financial development. We are all aware that it is still quite a tough time for many retailers. In this environment, I think it is positive that we can report an organic increase of 8% to the sales of nearly 2.2 billion SEC. That was up 7% compared to Q1 last year. Also, what I'm highlighting is that this increase was made with four less stores compared to Q1 last year. which is also illustrated by a strong like-for-like sales increase of 9%. Online was up 9% for the quarter. Online sales now stands for 12% of the total sales. And now looking at the sales development in our three markets. In Sweden, we reported organic sales increase of 9%. In Norway, we reported total sales increase of 7% and a strong organic sales increase of 11%. Finally, in Finland, we reported a total sales increase of 6%, representing a decrease in organic sales of 3%. Before moving on to the gross margin, I would like to elaborate a bit on the macro trends with business impact. Let me start with the freight cost. Let me remind you that these figures refer to spot prices and that we have a lag effect due to lead times from order place to product zone. The sharp decline and a new normal level is a positive sign also going forward. The effect on the weak SEC however seems to remain. We are still at the historical high exchange rate US dollar SEC, which will affect us going forward. On a more positive note, we are pleased that the NOC has strengthened lately. And let me now give you a picture of the main component explaining the gross margin improvement. This quarter we have been able to compensate for the macro impact by favourable price and product mix. We also saw a positive effect from lower transportation costs and currency hedging. However, the negative impact from the week SEC versus the US dollar is still significant. All in all, our gross margin increased by 3.1 percentage points to 38.2% in the quarter. As we previously have communicated, we are putting a lot of effort in making Klaus Olsson even more efficient given the challenges in the market. And the measures we presented in Q2 and Q4 have progressed according to plan, including the reduction of 85 plus 75 white collar employees. We will see the approximately 210 million SEK full effect of these savings on a full year basis going forward. We reported 170 million SEK in one of cost in Q1 and we estimate 50 million SEK to be reported in coming quarter. Let me now give you an overview of our earnings for the first quarter. Operating profit excluding one of cost totalled 154 million SEK compared to 90 million SEK last year. One-off costs connected to our cost-saving initiatives total 170 million SEK in Q1. Last year we had a one-off cost for the closure of the UK operation, totaling 35 million SEK. The 170 million SEK in one-off cost is more or less in line with approximately 165 million SEK we communicated in June. And the majority of the savings will be attributable to selling expenses going forward. We saw a decrease in share of selling expenses by two percentage points to 29.7%. The decrease is explained by both the highest sales and the net of one of cost and the realisation of cost savings. Administrative expenses total 46 million SEK compared to 44 million SEK in Q1 last year. Also here, our cost initiatives have had a positive effect in meeting the effect of cost inflation. So the reported operating profit was then minus 16 million SEK that is in line with the same quarter last year. And if we then turn to the inventory compared to the end of July last year the inventory level is down with 255 million SEK compared to last year reflecting the lower transportation cost and stronger SEKs. Also, it is important to have in mind that the inventory value has been impacted by external factors, such as the weak SEC in relation to US dollar. However, that is now partly mitigated by the significant lower transportation costs. And turning and looking into the cash flow for the quarter, cash flow from operating activities totaled 328 million SEC compared to minus 35 million SEK last year. The improvement between the quarters is mainly due to a higher profit before write-downs and the difference in change in working capital, explained by the lower inventory build-up during the quarter compared to last year. Net debt, EBITDA, excluding IF16, was minus 0.1 times, which means that the financial position is well in line with the financial targets. I hand over to Kristoffer.

Thank you, Pernilla. So looking at events after the reporting period, and more specifically on the August sales development. So all in all, total sales was up 14%, netting out at 860 million. We saw organic growth in Sweden of 15%, Norway 14%, and Finland 8%. So a solid delivery across countries. We also saw that online sales was up 11%. Looking at August we had three stores less than August last year and we see the trend continuing from Q1 into August in terms of all the missions actually growing versus last year. So a strong August while obviously the mission moving forward is to deliver on our five percent and we should not expect double digit growth every month moving forward. So to wrap up before we move into Q&A, we know that the market is challenging and there is continued uncertainty, especially when it comes to the consumer sentiment and the consumer spending. So we're very humble about that fact and are doing everything that we can to drive the relevance in terms of assortment, our value for money and price perception. and obviously it's key for us to be flexible we've shown that over the last 12 months that we've been able to focus a lot on need-based shopping and we need to continue being flexible based on how the consumer needs are developing we're also expanding our store network and obviously it's all about quality quality expansion rather than quantity but we are on track versus the 10 new stores this year and obviously we're also doing everything to grow our own ecom channel As Pernille explained, the cost saving measures are being executed and on track versus plan. And of course, we need to continue being extremely cost conscious and do everything to reduce complexity. But we believe that with the bigger changes we've done now, we are moving into the fall with a more competitive cost base in total. So with that short presentation, we will now move into Q&A.