Nelly Group AB

Welcome to Nelly Group Second Quarter Report 2025. Today I am pleased to present CEO Helena Carlin de Ostland and CFO Nicholas Lingblom. After the presentation, there will be a question and answer session. Participants are able to ask questions in written form on the audio cast page. Now I will hand over to Helena Carlin de Ostland, please go ahead.

Thank you very much and a very warm welcome to the second quarter results call for Nelly Group. My name is Helena Kalinder Östlund and I'm the CEO of Nelly Group and I'm hosting today's call together with my colleague Niklas Lindblom who is our CFO here at Nelly Group. Today's call will be divided into four parts. We will start with a short video to introduce Nelly. Before I will then provide some comments on the second quarter of 2025. I will then hand over to Niklas, who will provide us with a financial summary of the quarter. And we will, as always, conclude today's call with questions and answers. So please send us your questions throughout today's presentation. You can send them all the way to the end of the presentation. However, of course, we do appreciate if you can send them to us as early as possible in the call to make sure that we can see all your questions and answer them at the end of the call. So without further ado, let's start with a short video to introduce Nelly. So let's move on to have a look at the second quarter of 2025. We are very pleased to report that we have delivered another strong quarter. And I think this must also be seen in light of a relatively challenging market, which was quite volatile during this period. So we saw that April and May in particular were a little bit challenging. June was stronger, but taken together, it was quite a challenging and volatile market. I think our performance during that period really is a clear sign that our spring and summer assortment was strong and also that the Nelly brand continues to gain both lasting and resilient traction across our core markets. So a strong quarter in the context of a challenging market. Now let's look at some of the specifics. The second quarter is an important quarter for us, where our customers have many important reasons to shop, both a number of celebratory occasions such as graduations and the like, but also, of course, everyday occasions such as preparations for summer holidays and so on. So it is a very important quarter for us, and it's pleasing that we succeeded in both accelerating growth and improving profitability compared to last year. So net revenue grew by 15.1%, which can be compared to growth of 8.8% in the same period last year. And net revenue landed on 361.7 million crowns for the quarter. Operating margin increased to 15.3%, which can be compared to 9.7% in the same period last year. And we generated an operating profit of 55.4 million crowns as compared to 30.5 million crowns in the same quarter last year. So I think this is a really strong result and it highlights the potential of the Nelly business with a clear and strong year-on-year improvement. Most pleasing, the second quarter also marked our third consecutive quarter with active customer growth in our core markets. So the number of active customers grew for the third quarter in a row. And we really see that this was driven by two elements. Firstly, we continue to effectively recruit new customers. And this is both through the changes we have made in our paid advertising and how we allocate our paid spend, but also importantly, organically, through continuously building the Nelly brand in everything we do. So during the second quarter, we continue to see strong new customer recruitment. And alongside this, we also improved our repurchase rate among existing customers. So more of our existing customers enjoyed their experience previously with Nelly and returned to make another purchase. And I really do think this is testament to both our strong assortment and the end-to-end customer experience that we have created. So growth in our active customer base is a very important KPI for us going forward, as it absolutely is the foundation for growth going forward. So something we will be watching very closely, of course, in the coming quarters as well. Then let's move on. We also saw during the second quarter that our own brand continues to deliver. So our own brand share grew to 54.8% as compared to 43.8%. And this growth in the Nelly brand could be seen actually across almost all product categories. A few though are worth mentioning in particular. We further strengthened our already strong position in jeans, where we saw significant year-on-year growth in sales during the second quarter. And in addition to that, the Nelly brand also performed very well on tops, dresses and knits in particular. And of course, knitwear is an important and interesting category for us here. It is a smaller category in the second quarter, but the results of the performance we saw in knitwear during the second quarter really is a very encouraging sign ahead of the autumn and winter season when knitwear takes a considerably larger share of sales. So encouraging signs there. And of course, our own Nelly brand is also absolutely core in our flagship store in Stockholm. So around 80% of our sales in Stockholm come from our own Nelly brand. And as we now take our flagship store concept to Denmark with a flagship store in Copenhagen later this year, our own Nelly brand will of course have an absolutely central position there as well. Moving on to have a look at our return rates. So our return rate is always in focus. And here we continue to deliver a low return rate during the second quarter of 28.4% as compared to 31.3% in the same period last year. And this is the result of the continued implementation of our cross-functional return strategy. So just to highlight a few of the elements that we work with there, we continue to work very proactively with both the design and the choice of fabric for our garments to make sure we both achieve that perfect fit, but also that fit that will actually work for many different customers. We also continue to improve the type of customer information that we provide, so the type of product information rather that we provide to our customers and how we do that. We also continue to work with our IT systems enablement to manage our returns in the best possible way. It's important again to highlight here that easy and fast free returns are a very important service to our customers. So we have to make sure that our customers can, of course, in a very easy way return products if they don't quite fit. of our work on reducing our return rate is focused on eliminating what we call unnecessary returns. So returns that could have been prevented through, for example, clearer or better or more information about the products to the customer. So very, very focused on eliminating unnecessary returns. And this has resulted in this low return rate. Also worth mentioning here is that in addition to our cross-functional strategy during the second quarter, we also were able to, in a much more efficient way, replenish styles that had shown early signs of success. So we've made some changes there as well in our ways of working essentially to make sure that we can very early on tell which styles will be successful and will have a good return rate and then replenish those, which of course also then has a positive effect on the overall return rate. Now moving on to have a look at our gross margin during the second quarter. So we delivered a solid gross margin of 54.5% in the second quarter, despite price pressures in the markets and also some cost pressures, which I will come back to in a minute. Now the gross margin was of course, positively impacted by the growth in our own brand share. However, if you have followed Nelly for some time, you will notice that the link we have historically seen between growth in our own brand share and an increase in our growth margin was not quite as pronounced in the second quarter as we have seen historically. We, as I said, we achieved a gross margin of 54.5%, which can be compared to 54.7% in the same period last year. And the reason why this link was not as pronounced in the second quarter was because we did actually take a very conscious decision to maintain attractive and dynamic pricing towards our customers despite a number of sort of cost pressures. So we had higher production costs, especially among the styles that are produced in Turkey. And we also made a number of improvements in the quality in some of our best sellers, which of course impacted production costs. Despite this, we decided to maintain our key price points on some of our best sellers towards our customers, given that the market was a little bit more challenging during the second quarter. Now, it's also worth mentioning that there were some both calendar effects around Easter and our mid-season sale, which also meant that more of Easter and more of our mid-season sale fell into the second quarter rather than the first quarter. But the impact of this was relatively seen smaller than of our decision to maintain pricing. Nevertheless, a solid gross margin in the second quarter once again. Now let's move on to have a look at our marketing activities during the second quarter. So we can conclude that our marketing activities during the second quarter were both efficient and impactful and represented a significant investment in building the Nelly brand long term. So our marketing costs as a proportion of net revenue decreased to 10% as compared to 13% in the same period last year. Our online traffic in our core markets grew by 8.5% and the number of orders increased by 14.3%. And importantly, if we look at our paid advertising, we could also conclude that profitability per order grew once again compared to last year. So really a solid result from our marketing spend. It's also worth highlighting here again that we further increased our focus on our social channels. So Instagram and TikTok in particular, alongside also starting investment in some new channels. And this was our focus on our social channels was both in terms of paid and also organic. And the reason why we continue to increase our focus on these social channels is because we have seen that they do tend to build deeper relationships with our customers and also more solid loyalty long term to the Nelly brand. So important, of course, that we build the Nelly brand in a sustainable way, and that is best done through our social channels. So let's have a little look ahead as well. And there are some really exciting times ahead. So as I was talking about just a minute ago, we have seen really strong growth in many categories in the second quarter, both in our own Nelly brand, but also in our external brands. But we do believe we have yet more potential to capture there. both in terms of establishing an even stronger position in some of the categories where we have already performed incredibly well, but also in further categories where we have not yet made as much inroads as we have in, for example, jeans and tops. There are additional categories where we see significant potential going forward and this again is both in terms of our own Nelly brands but also our external brands which of course are absolutely critical and go hand in hand And establishing leading positions in all of our key categories will, of course, enable us to also expand the average basket size going forward. So we are very proud and pleased of the inroads we've made on many categories already, but there is more work to do there on further categories. Going forward over the coming quarters, we also have several new brand launches already planned with well-known international brands that we are really, really pleased to be initiating collaborations with. And we are also in further discussions with brands to hopefully launch them a little bit more longer term. So I think we have a very strong external brand portfolio already, which will become even stronger with these brands added. So very exciting for us. And of course, last but not least, as I mentioned a little bit earlier, we did announce at the end of the second quarter that we are expanding our flagship store concept, which has been very successful for us in Stockholm, to Copenhagen, to Ströget, to be precise, which is Copenhagen's busiest shopping street. And there we will be opening a new flagship store in this very beautiful old building that we see in the picture here later in the year. To summarize the second quarter, we have delivered a strong results with both accelerated net revenue growth and increased profitability compared to last year. Importantly, we are also winning more customers. We are growing our customer base through both new customers and more customers who enjoyed their experience and are returning, which is very pleasing. And we see significantly more potential ahead of us. So our focus over the coming quarters will of course be on capturing even more of the potential that we see in Nelly. So with that, I will hand over to Niklas who will provide us with a financial summary of the second quarter.

Thank you, Elena. And now let me give you a closer look at the financials for the second quarter. Net revenue in the quarter amounted to 361.7 million compared to 314.1 million last year, showing a strong growth rate of 15.1%. Main driver for net revenue growth was a combination of increased online sales before returns, improved return rate and increased store sales. The return rate decreased to 28.4% in the quarter, down from 31.3%. Currency effects affected the growth rate negatively, mainly due to the depreciation of the Norwegian crown. Net revenue in local currencies grew by 18.2%. And total number of orders in the Nordics increased by 14.3%. Average order value decreased by 6.8%, which was driven by both lower average item value and lower average ordered items. Moving on to the next slide. We conclude that operating profit in the second quarter amounted to 55.4 million compared to 30.5 million last year. Operating margin increased to 15.3% compared to 9.7% same quarter last year. So the second quarter showing record high levels for both operating profit and operating margin. Improved operating profit was mainly driven by higher gross profit through increased net revenue and a maintained high level of cost control. Let's also have a look at LTM figures on the next slide. Nelly is showing strong financials on LTM figures with an operating profit of 136.6 million and an operating margin of 11.7%. Increasing both operating profit and operating margin further, Nelly has over a sustained period of time performed both net revenue growth and continuously improved profitability, showcasing good momentum and cost control. And now let's take a quick look at the income statement on the next slide. So once more, net revenue amounted to 361.7 million compared to 314.1 million. Gross profit amounted to 196.9 million compared to 171 million, with a gross margin of 54.5% compared to 54.7% last year. Warehousing and distribution costs amounted to 42.7 million compared to 42.1 million. Costs as a share of net revenue improved to 11.8% from 13.4% last year. This was mainly driven by operational improvements, optimization of distribution and an improved return rate. Marketing costs amounted to 36.2 million compared to 40.9 million with costs mainly related to paid advertising. Marketing costs relative to net revenue decreased to 10.0% from 13.0% last year. And administration and other operating expenses increased to 62.6 million compared to 58.5 million. But improved as a share relative to net revenue amounting to 17.3% compared to 18.6% last year. So concluding the second quarter, we showcase a record high operating profit of 55.4 million up from 30.5 million last year with an increased operating margin of 15.3% compared to 9.7%. And lastly, let me talk you through some additional financials on the next slide. Operating cash flow amounted to positive 104.1 million compared to positive 105.8 million last year. And second quarter showing a strong cash flow from operating activities, somewhat lower than last year, affected by changes in working capital, but also affected by repayment of tax deferrals amounting to a total of 25.7 million in the quarter. And these were made in accordance with the approved payment plan. So by the end of Q2, we note that remaining tax deferrals amounted to 69.5 million, down from 105.6 billion by the end of Q2 last year. And cash flow from investing activities amounted to negative 9.2 million compared to negative 7.2 million last year, primarily attributable to continued IT investments. And net cash flow amounted to positive 87.1 million compared to positive 93.9 million last year. And we conclude the quarter with a healthy balance sheet with a solid equity ratio of 33.5%, improved from 23.8% last year. And cash and cash equivalents amounted to 259.6 million per the 30th of June, 2025. So overall, we are happy to present a quarter with strong financial performance for Nelly Group with a record high operating profit and margin. And with that, I hand it back to you, Helena, for some last comments.