Nelly Group AB

Welcome to Nelly Group Full Year Report 2025. Today I am pleased to present CEO Helena Carlander-Ostlund and CFO Niklas 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 Carlander-Ostlund, please go ahead.

Thank you very much and welcome to our results presentation for the fourth quarter of 2025. And of course, also looking at 2025 as a whole. My name is Helena Kalindo-Östlund. I'm the CEO of Nelly Group and I will be hosting today's call together with our CFO here at Nelly Group, Niklas Lindblom. So first, as usual, let me start off by briefly giving you an overview of today's presentation. So we will once again start with a short introduction to the Nelly business in the form of a video. I will then provide some comments on the fourth quarter of 2025 and also, as I mentioned, briefly commenting on the full year 2025. I will then hand over to Niklas, who will provide us with a financial summary. And as usual, we will conclude today's call by answering some of your questions. Now, just reminding you that you are able to send us questions throughout the presentation. But of course, we appreciate if you send them as early as possible so that we can make sure that we can answer as many of your questions as possible. So without further ado, let's start today's presentation with a short video introducing the Nelly business. So we will start by looking at some of the key factors shaping the fourth quarter of 2025. So to summarize the quarter, we achieved both growth and also improved profitability in the fourth quarter of 2025. But it is important to note that we did so in quite a challenging market. So in the fourth quarter, net revenue grew by 16.4%, which can be compared to growth of 5.5% in the same quarter last year. And this resulted in net revenue of 370.5 million in this past quarter. We generated an operating profit for the quarter of 47.8 million Swedish crowns compared to 36.2 million crowns in the same quarter last year. And this corresponded to an operating margin of 12.9%, which can be compared to an operating margin of 11.4% in the same quarter last year. So this is a stable result for the quarter, but as I said, in a challenging market, which we will come back to shortly. Now, we also saw a similar pattern for the full year of 2025. For the full year, net revenue grew by 15.5% as compared to 3.2% the year before. We generated operating profits of 166.4 million crowns. And that can be compared to an operating profit of 93.1 million crowns the year prior. And this corresponded to an operating margin of 13.2% as compared to 8.5% in the year before. But as I said, coming back to the fourth quarter, we faced a challenging market on several fronts. Firstly, we did encounter a highly price sensitive customer in the fourth quarter. So we saw that our customer was both drawn to more value priced items and also that actually the basket on average consisted of fewer items. So both of those factors taken together, of course, indicates a very price sensitive customer considering their purchases very carefully. And in a market that was so characterized by this price sensitivity, we also saw intense discounting as a response across the whole fashion segment, really. Of course, November is generally a highly discount-driven month, but we saw this actually across the whole quarter, that there was intense discounting across the whole segment, which of course impacts the environment that we operate in as well. Now, on top of this, we also had an unusually warm start to the winter. And this did impact demand for a number of seasonal categories. And these categories anyway have a short selling window, even during, let's call it a typical winter. But in this past quarter with the warm winter, we did see that demand for categories such as jackets and boots was more challenging. And this, of course, continued throughout the whole quarter. And since one of our core principles throughout our sort of transformation journey has been to ensure a high sell-through of every season before we go into a new season, this did require higher marketing intensity and also higher discount levels to mitigate. So both the heightened price sensitivity in the market and the A warm start to the winter required us to increase our marketing intensity and use a higher discount level than the year before to both drive traffic and also still achieve a high sell-through of the autumn and winter season. And we will come back to these points a little bit later in the presentation as well. So all in all, quite a tough market to operate in. Now looking at one of the core KPIs that we follow very closely is our active customer base. And here it is very positive that for the fifth consecutive quarter, we did see growth in the active customer base in the Nordics. Now this growth was primarily driven by higher conversion in Q4. So we did see relatively stable traffic year on year in the fourth quarter. But it's also worth noting that we required a higher marketing spend to achieve this traffic. So again, quite a hesitant customer out there. But with this high conversion in Q4, we continue to recruit more new customers than the same quarter the year before. And we also saw that the number of returning customers increased once again. So a positive development once again in our active customer base. Worth noting though, again, that while we converted more customers, they were more hesitant in their spending behavior, which did result in a lower average order value. And we have seen this negative trend in the average order value for some time now. And this continued in the fourth quarter. So as I said, a customer that was driven by more value-oriented product choices and also depended more than the year before on higher discounts to convert. And this of course puts pressure on the basket size with fewer items per order and lower average item prices resulting in a lower average order value. Now, going forward, our focus continues to be on making sure that we further strengthen the assortment across all of our categories, as we see this as absolutely key to being able to build the basket size going forward with more products and more importantly, also more categories per purchase. So critical to continue our work on improving and strengthening our assortment across categories to counteract the trend we've seen in the average order value for some time now. Moving on to the gross margin. Again, in the fourth quarter, we did see a slight improvement in our gross margin. We achieved a gross margin for the quarter of 54.0%. which can be compared to 53.3% in the same quarter the year before. However, again, this slight improvement in the gross margin was hard won. Of course, as we will see in a minute, we did achieve a higher own brand share once again in the fourth quarter, and this positively impacted our gross margin. But this effect was partly negated by the discounting that resulted from the cautious customer behavior and the warm winter starts where we prioritized clearing stock at the end of the quarter, which of course negatively impacted the gross margin here at the end of the year. The gross margin was also impacted by a number of currency effects, which Niklas will come back to a little bit later in the presentation. So as I mentioned, our own brand share grew once again in the quarter and landed on 62.1%, which can be compared to an own brand share of 47.2% in the same quarter last year. And this increase in our own brand share was primarily driven by a few key categories. So jeans, sneakers and knitwear all developed positively during the quarter and accounted for much of this increase in our own brand share. So, yeah, as I mentioned, positive impact on gross margin. But we did have to employ a higher discount, which was required to sell through the autumn and winter assortment. And it is worth noting that this was an effective So we did sell through much of the autumn winter assortment, which perhaps in hindsight, had we known that the winter would come on this side of Christmas and the new year, we would have perhaps done slightly differently. But as I said, sell through of the previous season has been one of our core principles that we have held tightly onto throughout this whole transformation. So once again, throughout the Black Week period and also the end of season sale, we prioritized sell-through of our autumn and winter assortment over achieving a higher gross margin. An important point to note here also is that while we are, of course, very proud of our Nelly assortment and pleased that the customer is choosing the Nelly brand. Our business model and our unique selling point is the mix between our own Nelly brand and our portfolio of external brands that we know our customer also values and wants. So going forward, we will continue to build our external brand portfolio We have strengthened it during this quarter with a couple of new brands. And so this will also impact our own brand share going forward. Not because of course the Nelly brand should weaken, but because we want to strengthen our external brand portfolio, which will impact the balance of our own brand share and our share of external brands as well. And lastly, to highlight one KPI that has been very important for us throughout this whole transformation journey is our return rate. And here we saw a historically low return rate in the fourth quarter. The return rate for the quarter landed on 22.8%, which can be compared to 27.9% in the same quarter last year. We have talked about the return rates frequently during our previous quarterly presentations and really highlighted that it requires a constant focus in our business to maintain a healthy return rate. But I think it's fair to say that for Q4, this was a very low level. And it's important to remember that this will fluctuate across seasons and quarters because the return rate is in large part driven by the category mix, which of course looks different across seasons and quarters as well. So in Q4 in particular, the return rate was positively impacted by some categories that tend to have a healthy return rate taking up a relatively large share of the sales. So as I mentioned before, both jeans and sneakers developed well during the quarter. And these are two categories that for us have seen a healthy return rates sort of emerge over the past couple of years. So if we turn to the future, looking forward, I think it's important to emphasize that we will stay the course and follow much the same strategy as we have been to date. But again, highlighting that this will need to be delivered in a tougher setting, both because of our own comparative figures, of course, but also because of the prevailing market climate, which I've talked about during the presentation, where we see that the competition for our particular target audience attention and wallet is absolutely fierce. And this will require both disciplined execution from us going forward, but also continued rapid adaptability to adapt to the market conditions as we see them. And we don't foresee these market conditions changing in the near term. So definitely a tougher environment to operate in. But as I said, we will stay the course. We will continue to refine our assortment and make sure that we offer a highly curated assortment to our customer. We will focus on further building our external brand portfolio, complementing our already strong Nelly brand with the best external brands. And we will also continue to focus on building the overall Nelly brand. So not just the products, but the overall Nelly brand as well. um that's uh of course as i said uh we will be under pressure in a tough market but i think it's important to stay the course as we know that these are the elements um that have have sort of enabled our performance to date and will be key going forward as well So to summarize the fourth quarter of 2025, before I hand over to Niklas, we did achieve both growth and improved profitability in the quarter, but we did so in a challenging market. We achieved growth in our active customer base, but with pressure on both basket size and gross margin. We achieved a historically low return rate in the fourth quarter, which positively impacted our results. But as I mentioned, important to note that this will fluctuate across seasons and quarters. And we continue to stay the course with our strategy that we continue to believe in going forward as well. So with that summary of the fourth quarter, I will hand over to Niklas, who will provide us with a more detailed financial summary.

Thank you Elena. So now let's have a look at the financial details of the fourth quarter. So net revenue in the quarter amounted to 370.5 million compared to 318.4 million last year, showing a strong growth of 16.4% in the fourth quarter. Growth was mainly driven by increased online sales before returns and an improved return rate. Increased physical store sales also contributed positively. Return rates, as Elena mentioned, improved to 22.8% from 27.9% in the comparative quarter. Currency effects affected the growth rate negatively, mainly due to the depreciation of the Norwegian crown, but also by Danish crown and euro. Net revenue in local currencies grew by 19.5%. Looking at the average order value in the Nordics, it decreased by 9.6% to 656 Swedish crowns, driven by both lower average item value and lower average ordered items. Total number of orders in the Nordics increased by 9.3%, so to a large extent mitigating the lower average order value in the quarter. And as a final comment on net revenue, we are happy to now have presented seven consecutive quarters with net revenue growth. And looking at the full financial year 2025, concluding in net revenue growth of 15.5%. And for the fourth quarter, we conclude an operating profit of 47.8 million. up from 36.2 million last year, showcasing an increase in operating profit of 32%. Operating margin increased to 12.9% compared to 11.4% last year. The improved operating margin were mainly driven by the higher gross profit. In addition, improved cost ratio for warehouse and distribution contributed positively. And looking at LTM figures, we maintain a positive momentum and conclude the full financial year with an operating profit of 166.4 million and an operating margin of 13.2%. This compared to last year's 93.1 million and 8.5% respectively. And taking a closer look at the income statement, we once again conclude that net revenue in the quarter amounted to 370.5 million compared to 318.4 million last year. Gross profit amounted to 200 million compared to 169.7 million. Gross margin amounted to 54%. improved from 53.3% last year. This improvement was mainly driven by a higher share of on-brand sales, both online and through our physical stores. At the same time, higher campaign activity and increased price competition in the market had an adverse effect on gross margin. In addition, currency effects mainly from a week in Norwegian Crown had negative effects on gross margin, not fully mitigated by the depreciated Euro and US dollar positively affecting us through part of our purchases. And looking at warehousing and distribution costs, These amounted to 42.3 million compared to 40.5 million. Costs as a share of net revenue improved to 11.4% from 12.7%. Driven by operational improvements, optimized distribution and the improved return rate. Marketing costs amounted to 37.3 million compared to 31.0 million last year, with the costs mainly related to paid advertising. Marketing costs relative to net revenue amounted to 10.1% compared to 9.7% last year. So in this quarter, we saw the brand building activities contributing to the somewhat higher ratio in the fourth quarter. Admin and other operating expenses increased to 72.6 million compared to 61.9 million with a cost ratio relative to net revenue that was in line with last year. As mentioned, we were very happy to open up our new flagship store in Copenhagen, which affected admin and other operating expenses in the fourth quarter with an increased cost base. And in addition, the fourth quarter also increased personnel and consultant expenses. As noted, operating profit increased to 47.8 million with an operating margin of 12.9%. To finish off the financial summary, let me take you through some additional KPIs. Operating cash flow in the fourth quarter amounted to 50.8 million compared to 71.8 million last year. Increased settlement of tax deferrals in the fourth quarter affected operating cash flow negatively and by the end of the fourth quarter remaining tax deferrals amounted to 42.9 million compared to 95.3 million same quarter last year. In the fourth quarter, we also adjusted our valuation of deferred tax assets related to tax loss carry forwards, increasing total deferred tax assets to 85.5 million. So this also had a positive effect on profit after tax and EPS in the fourth quarter, which is worth to mention. Inventory amounted to 188.2 million compared to 172.6 million and inventory levels as a share of net revenue LTM increased to 14.9% compared to 15.8%. Cash flow from investing activities amounted to negative 13.9 million compared to negative 2.5 million last year. Primarily attributable to the newly opened flagship store in Copenhagen as well as continued IT investments. And cash flow from financing activities amounted to negative 9.7 million compared to negative 32.8 million, mainly related to the payment of lease-like bills and compared to last year, mainly explained by last year's payment of an extraordinary dividend. And lastly, cash and cash equivalents amounted to 253.8 million compared to 193.9 million last year. Our equity ratio improved to 41.1% up from 26.4% last year. So ending the quarter and full year of 2025 with a solid balance sheet. And with that, I hand over to Helena for some closing remarks.