Clas Ohlson AB (publ)

Good morning everyone and welcome to the Klaus Olsson Q1 report. My name is Ekstav Tonström, I'm CEO and here together with Panila Valfridsson, CFO. So we'll cover a short presentation before we move into Q&A. So I'll start with a business update. Panila will take it through the financial development and then I'll close out with events after the reporting period and summary. So some highlights from the first quarter. We see that organic growth continues with 10% growth across the first quarter. And our operating profit came in at 203 million and our margin at 7.7%. Also cash flow stable with operating cash flow 413 million and the company is still in a very solid financial position with a net EBITDA of minus 0.4 and our EPS in the quarter amounts to 2.3 versus minus 0.42 last year. We also see a good start to the second quarter with 7% organic growth in August. I will come back a bit more to that. So moving in to the business update and starting from the strategic position that we talked about last time when we closed out Q4. So there are three big things that we're focusing on as a competitive advantage for Klaus Olsson. It's all about the assortment, the brand and the customer meeting. Those three things make us unique and that's what we're investing in to drive value forward. Looking at how to leverage this, we are differentiating and we're focusing across five niche areas. So we're moving more and more from a generalist retailer to more of a multi-niche player. And you can see the niches here at the bottom. We tidy up your home, light up your home, conscious home environment, connect and enjoy and fix your home. We're doing a lot of work to ensure that our business model is scalable and efficient and ensuring also a very cost competitive position. And we want to generate strong cash flow that we can reinvest into assortment, brand and customer meetings to deliver a very solid return over time. Looking at our targets, the mission is to grow 5% a year organically, 7 to 9 operating margin and also to be industry leading on sustainability. So looking a little bit at the first quarter, how we've been executing towards this plan, we identified three growth drivers for this year, which are very similar to the ones we have been focusing on the last couple of years. And the first one being making our assortment relevant 12 months per year. And I think the first quarter has shown that we're doing this in a good way. We see all the niches driving growth and it's really the non-seasonal assortment that's driving growth. Looking at the summer season assortment, it's an average summer and the growth of 10% organic comes very much from the breadth of assortment across the five niches. We have continued with a high pace launching new products and we also have a lot of new news now entering the form. Second growth driver, profitable and growing online business, we saw that the first quarter sales came in at 12%, so slightly above the total organic sales growth of the company. And we do see that our solid omnistructure is a competitive advantage. So also with more stores added to the network, it also supports the e-com growth. The space group delivered sales of 210 million and this is obviously another driver of future e-com growth. The third growth driver is building a robust store network. So in the quarter we have added three new stores, two in Sweden, one in Norway. And there's a plan to open another five stores now in the second quarter. And for the year, the target is that we're going to add net 10 new stores. Net means that we might open more than 10 and also close some. So net net, we expect 10 more stores to come into the network. We're also working to make the store portfolio more efficient and we are doing some rebuilds and investments in the current store network to make it even more efficient and optimize the chances to deliver a good sales development and return. When it comes to customer communication, we do see that we have strong relevance with our customers and the customer satisfaction continues to be on a very high level. And we also see Club Class continuously growing. So we now have five and a half million members. And the year ago we had approximately 5.1 million members. So Club Class continues to be a driver forward. We have done a lot of work to make our organization more efficient and we are growing now without adding anything to the organization and are continuously working to make the business model more effective and scalable. On sustainability, we just released the numbers for 2023 when it comes to scope one and two CO2 emissions and we can report a decline or a reduction of 38% across the full calendar year 23. Moving then into the niches, I've already mentioned that we do see all five driving growth. And also we see that our spare parts business is continuously evolving and also the consumables assortment. So we are very much a destination for need based products. And once the customer enters the store or online, they also find lots of other products that they actually need. And we do believe that the balance between these five puts us in a very good position forward. The last point on customer relevance and satisfaction. So I've talked about ABC Assortment Brand Customer Meeting. Here are some data points to show the progress. Starting with product reviews, which is obviously a reflection of the assortment. We do receive a lot of reviews from our customers and we also get very high ratings from our customers. So the products they buy, they like, keep and use for a long time. Second on affordability, one of the most important things for the Klaus Ohlsson brand is to always deliver value for money versus customers. And we can see from the benchmarking data here that we're doing a good job also versus the discount competitors. Our NPS, the Net Promoter Score, is very stable at 58. The store network is very strong and we have seen over the last few years a strong development also of the online NPS. So that's an all in all short business update and I'll hand over to Panilla to take us through the financial development.

Thank you, Christopher. And good morning, everyone. As Christopher has mentioned, we have closed the strong Q1 and I will now go through the figures more in detail. Our total sales is up 20% of which 10% comes from the acquired spares group and 10% is organic growth, sales growth in local currencies excluding acquisitions. Like for like sales was up 7%, and online sales growth in the quarter was 12% excluding spares. Including spares online sales was 494 million SEC for the quarter which adds to an online share of total sales of 17% for only 12 months. Looking at the different markets, we have really strong organic growth figures in Sweden and Norway, but Finland's performance is also improving. When it comes to macro factors, we have talked about the volatility in transportation costs quite a few times before and this quarter is no exception. There has been a sharp increase in spot prices during the past month due to many different factors with the situation in the Red Sea as an important trigger. We do see, however, a more stable development in recent weeks, but we'll of course monitor the situation closely. We have, as you are aware, different types of transport agreements and a lag effect due to the turnover rate of our stock in trade. The Swedish krona remains weak in relation to the US dollar which is of course affecting purchasing costs. Looking at what has impacted the margin, the currencies, as I have mentioned, had a quite significant impact. Here I would also like to highlight the positive hedging effect in NOC that we had last year which this year took off in an opposite direction, meaning that the hedging effect were negative compared to last year. The structural lower gross margin for spares grew up, also impacting gross margin negatively with about 1%. This we have mentioned before and it is an effect that will fall out of the comparison once we have had spares on our books for the full financial year. If we disregard the spare effect, things we had actively worked with ourselves, such as sourcing and pricing, have contributed to strengthening the underlying profitability. All in all, gross margin declined by .7% to 37.5%. The income statement shows a really strong Q1. Operating profit amounted to 203 million compared to minus 16 last year. As you know, the comparables include last year's write-on of IT systems and costs relating to reorganisation. So also when comparing with last year's excluding one of profit is significantly up. The FPS for the quarter was 2.3 sec, an increase from minus 0.4 last year's Q1. If we look at the inventory, the total inventory level is up. An important factor for the increase is somewhat earlier stocking due to the situation in the Red Sea. The spare group stocking trade is included in the figures, more new products and more new stores. Most importantly is that we see that it is a sound inventory that will support future sales with a good balance between different products and categories. Cash flow for the quarter was strong. Cash flow from operating activities totaled 413 million sec, an improvement from 328 million sec last year. Free cash flow amounted to 247 million sec compared to 184 million sec last year. Since we are highlighting the free cash flow, I would also like to mention that we define free cash flow as cash flow after investing activities including amortisation of lease liabilities. Net debt EBITDA excluding IFRICS 16 was minus 0.4%. So we maintained a net cash position and well in line with our financial targets. So with that I hand back the presentation to you, Kristoffer.

Thank you, Pernilla. Looking at August sales development, the first month of Q2, we saw total sales being up 13% to 968 million, of which 7% organic. We see negative currency effects of 3% and the acquired spare group adds 9% so we didn't have spares in the comparison. So broad based, Sweden up 7%, Norway 8%, Finland 7%. And it's obviously the Norwegian Krone that is impacting us the most. So we do see 8% organic growth in Norway while we report 1% growth in Swedish Krone. So that has a pretty significant impact. The store network was increased by 11 stores if I compare to the end of August last year. And similar to Q1 and to the previous quarters, we also did see all five product niches driving growth also in August. So a very strong start to the second quarter. Then wrapping up before we move into Q&A. So we are continuously working in line with the strategy we laid out more than two years ago now. We're working with our growth plan and we believe that the general market and the general consumer situation is still fairly weak and it's even more important or as important as ever to execute everything flawlessly day to day and also to continuously working with a very valuable money assortment. As I mentioned, we do still do a lot of work in terms of renewing the current assortment, launching a lot of new products and also taking out products that do not perform as well. And we are continuously developing our sales channels. So again, five store openings in Q2 and also working to strengthen the store network that we currently have and continuously growing online sales. We believe that those three factors will help contribute to continued 5% organic growth also moving forward. And as always, we will be tight in terms of cost control, not adding any cost even though we're growing and also every opportunity to find efficiencies will go after. So with that, we'll move into Q&A.

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

Thank you. Yes, a couple of questions from my end. Firstly, on the gross margin, can you elaborate a little bit about these external factors that you talked about here in Q1? How do you see these developing over the next few quarters? Are these continued headwinds and will they worsen or better? Just generally what you see on the gross margin?

Yeah, good morning, Niklas. So on the gross margin in Q2, it's pretty clear that looking at last year versus this year, obviously the Norwegian krone is significantly weaker. So the effect that we saw in August on the sales numbers, depending, of course, on what happens to the Norwegian krone, that could have an impact last year. The Norwegian krone was 104 to the SEC, 103 to the SEC in September and one krone to the SEC in October. So that will have an impact, depending, of course, on the Norwegian krone, because on the sales side, of course, the hedging doesn't help. Then when it comes to the transportation cost that Vanilla talked about, that will have an impact more so in Q3 and Q4. It will be too early to tell how much, but it will have an impact. I don't know if you want to add anything to that, Mila.

I think that covers it.

Yeah, and there's been no change now in Q1. There's been no change really in markdown levels versus previous years, right?

No, as we reported in the bridge, we've seen actually positive sales mix development. So we haven't intensified any markdowns.

Very clear. And I'm also curious about your margin target. I know you talk about reported margin, but if you look at adjusted margin, excluding the one-offs you had last year, you are now on a rolling 12-month basis. You're at 9.1. That's above the 79% target. And given that growth now continues to be quite strong also in August, is there any reason to assume that these margins could not continue higher than this 79% target? Is there any reason why you are sticking to this target at the moment and not revising it?

So it's of course all about delivering consistently long term. So as you say, we are on the upper end of the margin target right now. We haven't revised it for the year that we just entered. And it would of course always be some years on the upper end, some on the lower. So we haven't made any revisions, but of course our ambition is always to deliver as strongly as positively. But we also do see, as mentioned, that the external world is still of course volatile. So we also want to be prepared for anything. But I think that's the comment for now.

Fair enough. Good. On spares, I'm also curious because when I look at the average monthly sales in the first five months after you consolidated it, the sales were in their range of 50-60 million during the winter period. And now in the last five months, they've been above 70 million. And that's been during the summer period. I would imagine that seasonal pattern would have been the opposite. So just can you clarify if there are any big seasonal swings here or if the sequential improvement here is mainly related to strong growth in spares?

So the seasonality in spares is lower than that for Klaus Olsson. So there are no major seasonal impacts. The seasonal impacts usually in November, December are a bit stronger, but there are no major seasonal impacts. So the driver of the slightly higher monthly sales is obviously growth. We have seen as we mentioned before, a good development on the business to consumer side. As we have also mentioned before, the business to business side is a bit volatile. But now we've seen good performance across both. So no major seasonality, but rather a growth improvement.

Very clear. Thank you. And finally, just when I look at your planned store openings, you have seven planned openings now for the next three months. And there is nothing announced after that. Are you temporarily pausing expansion and now kind of evaluating the pickup in store openings that you've seen? Or do you expect the expansion pace to remain at a similar pace going into 2025?

We're not pausing. So the reported ones are the ones where it's all signed and announced. So we're still very confident that we're going to deliver the net plus 10 fiscal year 2024-25. Net 10 might also mean that we open more than 10 and then close some. So we do not expect that to slow down. And we are on track to deliver the net 10. So that also obviously means expectations on a few openings also moving into 2025.

Yes. And do you think that could continue into the financial year 2025-26?

I mean, let's say we have announced obviously year by year now the outlook and we are happy with the openings we've done. They do contribute well. And the ambition is to now show strong results also 2024-25. So there's nothing hindering us continuing into the year after unless anything unexpected. So the ambition is of course to continue. But we haven't announced any new targets for the following fiscal year.

Thank you so much for taking my question. Thank you.

The next question comes from Magnus Raman from Kepler. Please go ahead.

Thank you very much. I'll start with tying into the last question there about future store expansion or potential such. I mean, you write here in the report also that you expect the online growth to surpass store growth in the market in the coming years. So in such an environment, do you do you see room to continue expanding the store network beyond this fiscal year? Maybe if you can elaborate in some way on that.

So what we have seen over the last quarter is obviously that the online growth is slightly above that of the store sales growth. We do expect that our online business can continue to grow faster than the store sales driven by a lot of opportunities to basically cross the five product niches. Then when it comes to store and online for us, it's really the combination. So the established omnistructure that we do have when we open a new store, we do see positive impact on our e-commerce business in the region. And growing online also helps drive store growth. So it's really the two in combination that is strong for us, but we still expect online to have slightly higher growth rates. So they work well together.

Right. Perhaps you could also comment on how you view the competitive landscape, maybe particularly in the Swedish market with several discounters investing in growth and quite a busy online scene as well with players growing such as Amazon. How do you see the competitive landscape?

Yeah, the competitive situation is of course fierce as always. Lots of other players out there doing a great job. And for us, obviously, that means that the two most important things is of course having the relevant assortment that is very need based and then having the right price points to ensure that we do not lose any customers to anyone else. And I think the graph that we showed on product reviews, price perception and value for money and the NPS shows that we are doing the right things. But of course, we never underestimate the competition. But I think the combination of these things together also with our great availability, both online and in fiscal stores, provides us with a strong position. But we never underestimate the competition.

Thanks. You have built a solid net cash position here in recent years adjusting for leases. And I guess that's especially supported by the two recent dividends that have been rather small. Should we view this as preparing the group for possible consolidation in the market or do you see any material organic investment needs in head? Or how should we view it?

No, so we do have as you state, of course, we do have a strong financial position. Looking at the cash position right now, of course, we have the dividend that is significantly higher than last year. Then we are investing in the store network as communicated. We're also making some investments into the IT infrastructure. So in order we want to be in a position where we can invest, then obviously always balancing to ensure that we deliver a strong return on those investments. Then the targets for the next few years do not assume any further M&A. But I think we have shown with the sparse acquisition that we do not close that door if the right opportunity comes up. But current targets do not assume that. And second, we are also there are opportunities for reinvestment in the base business, also combined with distributing cash to shareholders now during the next year.

We also have a bit higher supplier debt in this quarter, just to note that because we have taken home products a bit earlier. So there is also a bit of allocation effect between the quarters.

Right, but it's interesting that you mentioned the dividend being up then clearly, of course, from the very, very low level the year before. But I think we have to look back to 2012 or something like that to find as low of a dividend as you had for your most recent dividend. So do you regard that as a high dividend, even if it was like, you know, increasing a lot year in year?

Yeah, no, I just stated that it's higher than last year, but it's obviously in line with the dividend policy. We're distributing 53 percent of EPS. So it was just a statement versus last year's dividend, it's up. And of course, we want to ensure that we continuously deliver on the dividend policy and are in a position to do that. While, of course, continuously investing into the business to ensure that we can grow and deliver a return on the longer term.

Right, yeah, just maybe linger a bit too long on the dividend question. But if I look at the period before the two recent years, you paid out, I think on average, 98 percent over a period of some seven, eight years where you actually had one year with postponed dividend included in that. So and I think there is also you kept the dividend policy relative, you reported EPS while that was including some write downs, non cash driven. So I mean, it is clearly substantially lower dividend in the two recent years. Just trying to get sort of the understanding of if you want to maintain that policy when at the same time you're building cash so that you prefer, you know, keeping the cash instead of distributing to shareholders.

So the dividend policy obviously is in place for this year and then it's up to the board. I mean, on the longer term basis, but for this year, obviously, the dividend policy is very clear. And we also believe it's very important to to invest in driving further growth and delivering obviously a total shareholder return. So but the dividend policy is obviously in place in place now and it has been in place for a few years. And it's of course all about carefully allocating capital in a way that delivers return. So that's the key thing for us. And right now we believe that there are opportunities in the business to further invest. We have seen that the growth drivers we've been focusing on has delivered a strong return, especially over the last 16, 17 months. And we want to continue down that path to to drive long term valuation.

Right. Thank you. And just finally on CapEx, you retain or you keep the 200 million SEC CapEx guidance? Yeah. Thank

you. Good. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

We do have a couple of richting questions from the webcast and the first one to Christopher. The Norwegian market. What can you say about the Norwegian market in the first quarter? And I should say this is a question from Pjerdic Handelswatch.

No, so I think both the first quarter and I was at August, we show we see strong organic sales in Norway. So the performance continues. The Klaus Olsson brand is incredibly strong in Norway. And we also see that from an assortment point of view, we have taken a lot of right actions to drive traffic and conversion of customers. So we're doing everything to maintain

that momentum. And any big challenges in the Norwegian market at the moment?

I mean, no, no other challenges than normal. It is obviously, as for the other two markets, a very competitive market. And what we mentioned briefly before, of course, a factor outside of our control is the Norwegian Krona. So that, of course, puts pressure on the on the results.

And also a question about the new store in Stenarsgata, Central Oslo. How has that performed and has it affected the traffic to other nearby Klaus Olsson stores?

So all in all, we're very happy with the overall store network in Norway. We're also very happy about the new Stenarsgata store. It's performed fully in line with expectations and also the full store network continues to perform. So we're very happy about that opening and it's going in line with our expectations.

And finally, then generally any any major focus in Norway right now that you would like to mention?

The focus is very much on our assortment, continuously renewing that. Second, continuously building our brand versus our Norwegian customer base, leveraging Club Klaus as a tool there. And then continuously delivering a very strong customer experience and customer meeting. So very similar to those of the full company. But obviously executing on that day by day in Norway is crucial for us also forward.

Thank you. And that was it from Handelsvård. And we also have a couple of questions from Arte at Inderes. First one, consumable markets have shown some signs of weakness in the Nordics. Could you reflect a bit on the market environment from your perspective? How has it affected Klaus Olsson?

Now, yes, the market has been challenged and we believe that the and of course we would rather have growing markets. But looking at the Klaus Olsson proposition versus customers having a strong assortment that is based on real customer needs. Make customer choose Klaus Olsson. Once they enter a store online, they find a lot of other products that they really need, buy and use for a long time. So that in combination with the right price position and great customer service has given us an opportunity to grow despite the markets. And of course, that is our focus also forward. We can't do that much about the overall market. So it's all about our own performance. And I think the recent results have shown that we are able to go against the market here.

And just to build on that, and also we mentioned it earlier during the call or during the Q&A session, that some comments about the competitive environment.

I think I've covered that. It is very competitive, both from local and global players. And it's all about focusing on the things that make a difference for your customers. And investing in the competitive advantages of Klaus Olsson. So of course, we're closely monitoring the market development and all the competitors on

a global basis. And furthermore, then based on sales in August, also Finland is picking up in growth. And do you see that as a result of your own capabilities or is the market picking up right now? And what's your expectations for the coming months?

So in general, there are no signs of a market pick up in Finland. So the development for Klaus Olsson in Finland, I judge being very much driven by our activities and our actions. As you mentioned here, the growth organically was slightly higher in August, but that's just one month. But all in all, it's going slightly in the right direction. And we are currently focusing a lot on the sortment in Finland and on our Econ business. As you've seen, we have not announced any new store openings here and now in Finland. So we're focusing very much on the sortment online and brand.

And finally, then Finland is increasing VAT. Could you elaborate a bit on the impact on Klaus Olsson and how any actions you have taken to mitigate this?

So the VAT increase is obviously broad based for everybody in the market. And as always, we work actively with our pricing to ensure that we are competitive from the pricing point of view, while at the same time delivering the desired margin. So it's a balance act, of course, when something like that happens, but it's the same for everybody in the market. So we're monitoring that and we're working actively with our own pricing in line with our pricing strategy.

And that was it when it comes to questions from the webcast. So any final remarks, Kristoffer?

Thank you very much. Thanks for all the great questions. So again, now we have closed one quarter, which obviously was strong and in line with our plan. I also think we have seen a good start to Q2. And now it's all about executing the fall and the very important Christmas period for us before we meet again in December for the Q2 report. So thank you very much for taking the time this morning.