Clas Ohlson AB (publ)

Good morning and welcome to the Claes Olsson Q3 report presentation. My name is Kristoffer Trondström, I'm CEO and I'm here with Pernilla Walfridsson, CFO. So as always, we'll go through a business update. I'll do that fairly quickly and then we'll move into the financial development with Pernilla and then I will cover the events after the reporting period, summarize and then we'll move into questions and answers. So overall, looking at the third quarter, We continue to execute on the updated plan and strategy that we laid out approximately two years ago. And looking at the results for the quarter, we continue to see solid sales developments with organic growth results amounting to plus 12%. We've also seen the operating profit improving to 422%. And as in previous quarters, we also see that the prioritized categories, our five consumer missions continue to be a driver of growth together with relevant product news within those five missions. We have had a high focus and continue to have a high focus on efficiency and flexibility. We have executed on our cost saving programs and we're becoming faster and faster as an organization. Looking at the cash flow for the first three quarters, it's amounting to almost 1.6 billion versus 947 million last year. And our financial position is very solid with a net debt 0.5. So net cash at hand closing the quarter. Also, the fourth quarter has started well with 19% organic growth in February. So we'll go through this a bit more in detail now. So we'll move into the business update. So starting by recapping a little bit on our objectives, we want to grow 5% organically every year, and we want to deliver 79% operating margin. We also want to be industry leading in sustainability and work to make our business model more and more sustainable. Looking then at the execution of this strategy over this year, we laid out when we kicked off this year, three main drivers of growth. And the first one is making our assortment relevant 12 months a year. And the second one is driving a profitable and growing online business and also expanding the store network after a few years of optimization. Starting with assortment, again, we see that growth is driven across all the five consumer missions. And we have also been able to quickly adapt to changing consumer needs. And I'll have a few examples of that. We also see that our customers are very engaged. We have almost 170,000 product reviews only in this quarter, which is significantly up versus last year. So the engagement in the assortment is high. On the online side, we've grown 19% in Q3 and still we see big operating leverage in terms of working with our online through the physical stores. So still 50% of orders are delivered in one way or the other via the physical store network. And now also consolidating the spares group into the numbers in Q3, 17% of total sales now is online. When it comes to the expansion of store network, we've done a lot of hard work over the last year. And so far, we've opened four new stores in 2023-2024. And we plan to open another seven in Q4. We've also rebuilt 10 stores and rebuilt slash moved during this year. And it's important for us to continue to improve the store network that we have. We're also announcing today a concrete target for 24-25, the year that starts May 1st. And here we have an ambition to also open another 10 new stores during this year. And we've already signed eight new contracts. A big enabler. This growth, these growth drivers is to continue to be very effective in terms of our marketing. And we do see that a majority of spend goes digital. And we also see a lot of organic growth in terms of engagement from customers in our digital channels. And we also start seeing a expansion of the younger customer groups into our club class membership program. It's critical to continue to be very cost conscious. We have done a lot of changes to have a very competitive cost base and leaner overheads to allow us to invest in growth for the future. We have realized that plan. We have executed on what we laid out to do. And it's critical to continue now all the work driving growth while not expanding our overhead. When it comes to execution on the sustainability agenda, obviously a key part is making our business model more and more sustainable. But it's also encouraging to see that as an example in this quarter, we were recognized as one of the most sustainable companies on the Nasdaq Stock Exchange in Stockholm. We came in as number seven out of 130 companies. Digging a bit deeper into our assortment, we are obviously a product and assortment company. It's the foundation of everything. As part of that, the plan and strategy years ago, we laid out a clear focus on five areas that we call our consumer missions. It's critical to be relevant across those five. And at the time, we saw growth in tied up your home and light up your home. And what we've seen over the last year is the other categories picking up as well. especially strong growth across Connect and Enjoy Your Home with a lot of tech accessories, mobile accessories, etc. And here we deem that we have been growing market shares. We also have a high focus on our spare parts assortment and now with the addition of the spares group, it becomes more and more important and we see a lot of underlying market demand growing on spare parts. Also, if you visit the store today versus a couple of years ago, we have also more consumable articles. So the five missions are traffic drivers and the consumables are more relevant basket fillers. So you can pick up washing liquid, cleaning products, et cetera, while you're anyway visiting. The third quarter is obviously the biggest quarter for the year, and it includes the important Christmas season. We saw that the market was still fairly challenged, but we were able to deliver a very solid Christmas with November-December sales on very high levels, amounting to almost 2.5 billion SEK. Moving into a little bit deep dive on our brand. It's clear that the Claes Olsson brand strength is significant. We have done a lot of work in terms of our consumer communication. Now almost 25% of the population in our three markets are members in our Club Claes membership program, and we've seen growth of 8%. So amounting now to 5.4 million members. It's also encouraging to see that the fastest growing segment is among younger consumers. We see huge organic reach and you see a couple of examples on the slide where customers themselves share a lot of videos on TikTok, et cetera, displaying, organizing products, et cetera. And we were actually awarded as the retailer of the year within TikTok. So a lot of that is driven organically. And we see engagement from younger customers. That's a key thing for us looking longer term as well. Also, in terms of being quick and flexible with our assortment, we see that when external events happen, we have a good way of adapting and we are a go-to place for things to help you at home. We have seen, as an example, some extreme weather in Norway over the recent couple of months. And we have been very relevant in terms of getting the customers the right assortment. And that has also generated a lot of media. We saw the same thing in Sweden during January when there was a spike in prepping products, given the media attention around that. And we were very much a go-to place then as well. From a total sales point of view, not super material, but still it's a sign of the strength of our brand. And last but not least, when we're announcing our store openings, we do generate a lot of especially local media attention for every new store that we announce. So again, the brand Klass Olsson stands strong. Going a bit more into depth then on our expansion of the store network. So here you see the maps of Sweden over Finland. and we have laid out here the stores that already opened in 2023-2024 and also the ones that are planned for 2023-2024. We also want to highlight the fact that we are working with Rebuilds to upgrade the store network and here the focus is not to bake the stores nicer, it's really about making the stores more optimal. Right square meters, right ability to fill it up with the right assortment, et cetera. So we are working both with improving current network and then adding. So looking at the next year, again, we plan to open another 10 or have another 10 net addition during fiscal year 24-25. And we want to do this in a very controlled way. We go for quality rather than quantity. And it's critical for us that each new store that we add become profitable within the first year and that it really drives and adds profitability to the full group. And also without adding in the overhead. As you can see, it's also the highest focus is within Sweden and Norway when it comes to expansion, but we're also making a few changes within Finland. Then turning a bit to the spares group. So we announced back in November, or we announced it back in September, but the acquisition closed in November. It was also acquiring the spares group consisting of four different parts. So, teknikdelar and batteriexperting, business-to-consumer brands, and then to business-to-business parts, spares and land parts. Now, it's the first quarter where spares is integrated and included in the Claes Olsson numbers, and it's developing according to plan. We see a very strong underlying trend. Just as a recent example, we see the Right to Repair Act being approved now by the EU, so we expect a continuous market demand for spare parts. And there's a lot of work in progress now to drive joint value creation between the two companies. We do have a one-segment reporting, and we have integrated, consolidated spares into Klaus Olsson as of the third quarter. The purchase price was $431 million for 91.4% of the shares. The founders and the management team reinvested and is staying on. And we do not expect any further payments on this purchase price at this time. Then, the final point, we do see that the consumer sentiment, the consumer confidence is slightly improving across Sweden. We're still below historical levels, but it's improving in Sweden, and it's softer in Norway and Finland. And it's critical for us to remind our value, strong value equation versus customers. We measure this on a going basis. And for us, it's about having high quality products at attractive prices. It's not about always having the lowest, lowest price point, because then you risk jeopardizing the quality. And our customers expect us to deliver value, which is right price, right quality. And as seen in the graph at the middle, We do stand out as delivering value, even when we compare ourselves to discounters and low price traders. Together with this, our customer service is critical. And again, this quarter, we see an MPS level of 65, despite the strong growth and many more customers coming into Klaus Olsson. We're maintaining a very high customer service. So huge credit to everybody facing and meeting our customers every day in our stores, across customer service and on e-com. So that summarizes the business update, and I'll then hand over to Pernilla to take us through the financial development.

Thank you, Christoffer, and good morning, everyone. Let me give you some details on the financials of Q3 and the first nine months of this financial year. Q3 is, as you know, our biggest and most important quarter. We have maintained a positive momentum from the first six months and increased sales by 9%, excluding the spares group. The organic sales increase was 12%. Like-for-like sales, meaning sales in comparable stores, was up 12%. Online sales, excluding spares, was up 19%. As previously reported, this is the first quarter when the acquired spares group is consolidated. This means that we do not have comparables for spares yet, and this is the reason why we have decided to report sales both including and excluding spares for the time being. Total sales including spares was 3.4 billion SEK in the quarter. As you can see, the inclusion of spares also means a big leap in total online sales, amounting to 589 million SEK in the quarter. For the nine-month period, we had an organic sales increase of 10% compared to last year, which is well above a growth target of 5% organic growth. When it comes to different markets, we have solid total sales growth in all markets in Q3. As you can see, organic growth has been particularly strong in our biggest markets, Sweden and Norway. As always, I would like to briefly remind you of some of the macro factors impacting our business. There's been quite a lot of focus on the situation in the Red Sea lately. And as you can see, spot prices for container freight have increased in the past month. However, we see positive indications in terms of stabilizing and somewhat decreasing prices and do not view this as something that will have the same kind of impact as the bottleneck effects during the pandemic. It is, of course, impacting us and we will continue monitoring the situation closely. But for now, we believe that costs and attempt to delay from rerouting ships are manageable. When it comes to currencies, we continue to be impacted by the US dollar versus the SEC, and now also the weaker NOC, as we have a large share of our total sales in Norwegian currency. The currency effect is something you see clearly impacting on gross margins. Although we have had positive effects in the quarter from our hedging, the weaker SEC and weaker NOX has by far offset those gains. Cost for sourcing and transportation is continuing to be factors that are gross margins. We have communicated before the fact that consumers have responded More on campaigns and offerings has a big impact on profitability in the sector. I might add that we have not been more aggressive on campaigns. It is rather the more and more price-sensitive customer who has chosen to do more once they have found good. In summary, we reached a slightly higher gross margin than last year at 38.4 compared to 38.2%. Summarizing our income statement, we have improved operating profit substantially. The operating profit almost doubled to 422 million SEK. Last year's Q3 was, of course, heavily impacted by non-recurring items. But also looking at operating profit excluding items affecting comparability, profits are significantly up to 425 million SEK. compared to 334 million SEK. Share of selling expenses decreased by 1.2% to 24.5%, mainly thanks to increased savings and previously communicated cost savings. Admin expenses were more or less flat. For the first nine months of the year, operating profit landed at 651 million SEK, including one of us. We have a good and well-balanced inventory. The total inventory level is up compared to last year, but now we're including inventory in spares group. Cash flow for the first nine months of the year, symbolizing one of our key strengths. Cash flow from operating activity, total, 1,597,000,000 SEK compared to 947,000,000 SEK last year. Bear in mind that the cash flow was affected by the acquisition of spares, but also an even greater effect on lower dividend this year compared to last year. Looking at net debt EBITDA excluding IFX 16, we can conclude that we have a net cash position in end of Q3. I then hand over to Kristoffer again.

Thank you, Pernilla. So quickly looking at the February numbers before moving into Q&A. So February, we saw continued solid organic sales development, adding up in total 19% and 19% like for like. And this was broad based, 18% in Sweden, 22% in Norway and 14% in Finland. And we have continuously also seen our online business growing 20% if we exclude spares. And you also see the numbers including spares here on the slide. Looking at February specifically, the store network was unchanged compared to end of last year. So we haven't yet started to see the effects of the store openings. So to quickly conclude, as I said initially, we continue to execute on the strategic plan that we laid out two years ago. We know that the market continues to be challenging, yet some improvements in consumer confidence in Sweden, but there's still uncertainty around consumer spending. So for us, it's critical to maintain relevance when it comes to assortment. We need to do everything to deliver value for money. And also, of course, to continue to be flexible, given how fast the demand changes across lots of different product categories. And we also do a lot of work to develop the sales channels to continue to drive growth and to deliver the five percent organic growth also next year. Here, the store expansion is critical and we laid that out, but also to continue growing our online sites and get the effect of both those together. And as said before, we need to continue, we want to continue to be very cost focused and keep a lean overhead because that gives us the ability to also invest in the future.