Rugvista Group AB (publ)

introduction and good morning everyone nice to see so many of you here for this call uh this is our quarter three call and also my first as ceo for uh ragvista my name is ebba jungerud and i have our cfo joachim turner with me here by my side so we will have three parts to this uh call today first a business update then we will go through the financials which you will do joachim And then last, but of course not least, we have a Q&A. So to kick it off, let's go straight into the business update. So the market climate. The consumer sentiment, we feel, has improved slightly during the quarter. Germany continues to be very tough, and as you know, that's a big market for us. But the Nordics especially look a little bit better. We don't necessarily see so much change in the purchasing structure or purchasing patterns yet, but we still see this as a positive sign for the future. But it also means that we need to be quite flexible in following the markets where they develop and where we invest in marketing spend, et cetera, to match the customer. So if we look here, you can see the customer confidence. It has improved slightly, especially in Sweden, which is the top one. And France is keeping at least stable a little bit up. But Germany, as you see, is still very, very low. So that's not a huge change from the last quarter. We also, as I said, we have price conscious consumers and we also see this because they tend to trade down. So basically what that means is when they come in on our site through an ad or through an email, we see a tendency to enter on one price point and then trade down slightly in what they decide to buy. Moving over to our net revenue in the quarter, it was quite affected by AOV, which means average order value. Our net revenue was almost 145 million, and that's compared to 160 million lost Q3. That's a 9.3% drop versus last year. And the organic net revenue was also negative on minus 7.1. The average order value went from almost 3,200 to 2,950. So that's an almost 7% drop from last year. So this is of course a very driving part in the drop in net revenue. As I wrote in the report, we're very aware that this is a drop that we need to stop. uh we have been really good at driving orders and we have also when we are very good at driving new customers but we can't fully make up for the drop in aov only through that so we need to work a bit more structurally on the aov going forward and that will definitely be a focus area for us um Then if we move over to the order count, the growth in 2023 was very high compared to 2022. So this year we actually dropped compared to last year, 5.3%. We totaled on 68,000 orders. But if you compare it to Q3 2022, it was actually up 36% this year. So it just proves that we have fairly tough comparables from the last quarter. And when we look at new customers, we had almost 50,000 new customers in Q3 this year, which is a drop of 8% versus last year. and then you have seen this slide before in the presentations this is the first chart to the left describes our assortment and you can see that there is a if you look at the very light gray bar in the bottom you see that there is a slight increase in the absolutely lowest cost segment but we are fairly stable if we look at the whole the whole offering so so the drop when we talk about the drop in net revenue comes more not so much from what we have offered but more from the drop in order and also the average order value and of course as i said we will focus a lot on average order value going forward which also means that we will look at the customer journeys on site and how we how we present our assortment Then if we move over to the EBIT, that was affected by one of costs. We have a very stable gross margin over time, and this is something that we balance. So it's on a good level to cover all our costs, but it's also not pushed too high to have a too expensive offering out to the customer. our marketing efficiency improved by two percent which is very good especially for this quarter and that really comes from from three factors the marketing percentage tend to fluctuate over time but we have seen a drop if you look at the rolling 12 for some time. First of all, we are working a little bit differently with our channel mix. If you look at the sessions for this quarter, you see that the sessions on site, so the numbers of sessions on the site have gone up quite a lot. That's partly because we have focused on pushing higher up in the funnel, basically means that we get more customers in. The conversion drops a little bit, but bottom line, it looks better. And we also, and this you've heard about before, but we have since we switched the site more than a year ago, we have worked very consistently with organic growth and SEO, and that continues to help us. And last but not least, we are working much more actively with our customer base today to communicate with everyone and give them great offers. And that also helps with the marketing percentage. Looking at the EBIT itself, it was 9 million compared to 18.6 last year, and this is 6.2%. There is a one-off cost in this, which has to do with Michael, our former CEO, leaving the company. So that has affected the result. And if we look forward, we do have a very strong balance sheet and that gives us opportunity to drive our strategic agenda. The first thing is, of course, that we are now in the middle of Q4, which is our peak season. So we did spend time and also, of course, money and investing in our inventory. So we have a great offering to the customers when they come onto site. And then you have heard about our office and warehouse move. This is progressing well. It's a very big project for us and it's a very important project for us. This is, of course, for us to enable future growth. It will require investments. So that's also why it's important that we have a strong balance sheet. And last but not least from this is, of course, that we continue to focus on our customers. We are, I would almost say, customer obsessed in Ragvista and having come in and now working every day and operationally in the company, it is so true. And I really like this about the company that people talk about the customer, we focus on the customer. And just to show you a little bit what that means in reality is we measure both NPS, which means Net Promoter Score, and we measure Trustpilot for every single customer who makes a purchase. And the Net Promoter Score goes from minus 100 to plus 100. We have consistently been over 60. 62 was the number for... for Q3, which is an excellent net promoter score, I must say. We're very, very proud of this. And Trustpilot, the same. Trustpilot goes from zero to five, and we were on 4.7 in Q3, and this is also very, very strong. So that, of course, doesn't mean that we relax. It means that we continue to work on our offer in terms of qualitative and beautiful rugs. And also that we continue to work on site and all the way from the first touch points in our marketing to make sure that we have good customer journeys and really funnel the customer to the exact rug that they are looking for. So with that, I hand over to you Joakim.

Thank you, Ebba. So like Eb earlier mentioned here, we had a very good quarter in the prior year with high comparables with plus 43% in order growth. And we got another plus 10% in net revenue due to the weak Swedish currency in a positive currency impact. And subtracting then the drop in average order, we had a 25% growth in net revenue in prior year. So I think we need to bear that in mind when we look at the sales performance for this quarter. Net revenue declined by 7.2% organically, that is excluding the currency impact, and 9.3% including the currency impact. Our largest segment, B2C, is down by 9.2%. B2B, though, is down by 17%, whereas we sold quite well to the trade partners, but we dropped in the smaller business segments, which more tend to follow the B2C. MPO, which is mainly Amazon and our smallest segment, is up by 38.4, driven by new campaign types. And in the table to the right, you can see the regional development in our B2C segments. DACH dropped by 18.3% with high comparables. Nordics continue to perform better with a slight growth of 0.3, especially Sweden standing out on the positive side. And the rest of the world, which is mainly then the rest of Europe, we decreased by 10.5 percentage points. So I move on to the next page and the gross margins.

Great.

So we have a stable gross margin with a minor drop of 0.3 percentage points. And the cost for customer shipping expenses had a minor increase as a share of net revenue. And that is despite our drop in average order value and our improvement efforts to streamline customer deliveries is having a positive effect. If you look at that cost over the past three quarters, we have lowered the cost in every quarter, and that is despite the drop in average order. And as a reference, the total gross margin for the first half was 62.2. Last year was 62 and the year before 62.0. So we have a stable growth margin, it can vary between the quarters. If we then take a look at the segments there to the right, MPO where it's negatively impacted by that we have this discounting, which is the new campaigns that we have tried out in the period, which gave a good impact on the top line. The B2B segments have more been aligned with the patterns that we see in the B2C segment. where a significant part of this segment is smaller businesses that buy from our website and are not trade partners. And in B2C, we have a small margin improvements. So overall a stable gross margin. So I'll move on to our cost ratios and the EBIT margin. And I just spoke there about the margin variances. So the same explanations then apply to the goods for resale percentages. And bear in mind there that the goods for resale percentage is not exactly 100 minus the gross margin as the other income is included in gross profit as well. In other external expenses, we have improved by 1.2 percentage point. And this is due to our focus on marketing efficiency that Ebba mentioned, resulting in lower marketing costs. Personal costs, we have had the major cost increase here by 6.6 percentage points. And the organizational change here with accruals for the cost for the CEO departure was 4.8 million or equaling 3.3 percentage points. And we also have these negative economies of scale when we decrease in sales, which explains 1.1 percentage points. And the remaining cost increases, which we haven't split out, is the higher number of FTEs. We are nine more this year compared to prior year. It's the transition of the staff at the Berlin office, which is included in there also. They were formerly on an externally hired and now on our payroll in our German subsidiary. And also in this line, we have the general salary increases for this year. In other operating expenses we have the foreign exchange effects on transactions and from the revaluation of assets and liabilities in foreign currency and this effect was positive in this year versus negative in last year rendering a 1.6 percentage points positive difference. Depreciation and amortization has increased versus last year It is mainly driven by that we have started the amortization of our intangible assets, our e-com platform. And we started that by the end of quarter two. Also rent increases, the indexing of the properties that we rent to three properties. And also in the end of last year, we contracted a new warehouse in quarter four. So all in all, we are 5.4 percentage points lower EBIT module. And for the variable components in the P&L, I think we have a good development. We see three consecutive quarters with a decreasing shipment cost. We also see that in each three of the quarters this year, we have a lower marketing cost as a share of net revenue for each quarter. And then we have the high increase in personnel costs, which is driven partly by non-recurring costs. If we look at the personnel costs compared to quarter two, we have a drop if we take out the one-offs. So I move on to the balance sheet, starting with a big item, inventory. So the inventory increased by 30 million versus the year end. And this is according to plan. It's almost on par with prior year. And this is to have good levels for the high season now in quarter four. And as you can see to the picture in the right, we are at the higher side of the target range. But this is where we want to be when we start quarter four. Last but not least, we have an improved net cash position. We have been through the part of the lower earnings, which affect our cash flow, of course. And then on the working capital side, we came into 43 prior year with quite high levels of inventory. We also sold a bit more than expected. And that made that we decreased in last year, the inventory of 10 million versus in this year, we have a planned buildup. of 10 million, and this is the main explanation why the working capital is changing. On the cash flow from investing activities, we activated the development cost for the Econ platform until end of quarter two in the balance sheet. But then this quarter, this is expensed, all the development cost for the web platform is expensed in quarter three. And in quarter three, we instead have the investment of fixed assets of three and a half million. which is part of our moving project where we move to a new office and warehouse building in the summer of 2025.

Yes, that would be nice.

Yes. So the net cash position at the end of 43 was 137 million. I give a mention an improvement of 25 million versus two, three. So to summarize this, if we call it balance sheet parts, we have a good level of inventory. We have no interest bearing debt to financial institution and we have a good cash position. So I think it's fair to say that we have a very strong balance sheet.

I do agree with you on that. and um yeah to summarize what we talked about um we continue to work on our strategic initiatives this very much focuses on the customer and making sure that we continue to have our high customer satisfaction levels uh we also continue to to drive new customers and and orders as we have done before but balancing this somewhat more going forward with making sure that we stabilize our average order value. The customer journeys on site also continues to be a focus, especially building differentiators, depending on where you come in and what you look for when you come in. And as Joakim mentioned, office and warehouse move, of course, continues. So the net revenue is down 9% year on year, but Q3 was exceptional. We still see the price sensitivity in our customers. And there is, of course, a concern around the large Central European and to a certain extent, the Southern European markets. But we do see a slight improvement in the Nordics, which we hope will continue going forward. We are very excited about the black month that we are in right now. We know that customers tend to wait with these big purchases until they see good discounts. So of course, this is something that we have been looking forward to and working towards. And I would also like to say that it's been a very a great first month as acting CEO of Rugvista. It's really great to see the teams, how hard everyone works. And I would like to extend a warm thank you also to Michael for all the hard work that he has done for the company over the years, and also how he's helped with the handover to me. We are recruiting for a new CEO and that process has kicked off. So you will, of course, hear more about that when we have more information to share. And I think with that, we are finished and we can move over to the Q&A, right?

Great.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Victor Hansen from Carnegie. Please go ahead.

Thank you, operator, and hi, Ebba and Joachim. A couple questions here. On the outlook. Hi. On the outlook, Ebba, you mentioned early science one improvement. I'm wondering, is this based on your internal data, such as order data or anything else, or is it more macro based?

It is based on both what we see in sales for the Nordics. There was a slight uptake, as Joakim shared, and also what we see in the macro trends. I showed a slide of consumer sentiment, and it is stabilizing and even slightly positive in the Nordics.

Okay, great. So it's a combination. Yes. Yeah, I saw that you lowered the marketing spend here by two percentage points of sales and you mentioned it a bit here and you pointed to increased marketing efficiency. I was hoping you could give us a bit more color on this and if we should expect this greater efficiencies to remain going forward.

I think it's important to point out that this KPI tends to fluctuate over time, so it's not a straight line, which is important to remember. Q4 tends to be fairly expensive because it's a competitive market. But over time, yes, we do see an improvement. It comes from three sources, really. The first one is our site that is much more SEO compatible, I suppose, as you could say, since the shift that we made. And SEO is a continuous work, so it doesn't stop ever. But just the fact that we can work with it and continue to work with it helps us over time. The second one is that we are working much more actively and more focused with our customer database, especially the active customer database. We have tools today that are better at segmenting and projecting what customer wants what, so to speak. And then the last one is that we have shifted a little bit in our marketing mix, not a huge shift, but a bit of a mix to meet the potential customers higher up in the funnel, which basically means that we bring in more people to our websites, which you can see in the sessions. Conversion drops a little bit, but if you look at the total number, we end up at a lower cost for the marketing. So those are really the three areas.

Okay, perfect. And a final question for me, if I may. Your AOV continued down year on year. I'm wondering, is this mainly from further trading down or is it more from your discounting? Because I've seen some quite heavy discounting from your emails. And do you expect AOV to start stabilizing from here? Because it's been relatively similar now for between three and five quarters in a row now, depending on how you look at it. So is it starting to stabilize? Yes.

Joakim?

Yeah, it's not that we are offering higher discounts. That is not why the average order is going. However, we see that consumers within the categories are trading down both to cheaper rags. And one example of that is, for instance, that the volume in square meters actually goes down. We don't think people might not live in a smaller place, but they actually trade down in size. trade down in price and to a larger extent to seek to buy with the discounts they hunt for the discounts that we offer so it's not that we are offering higher discounts at least not in in quarter three okay and any comment of if you think AOV is starting to stabilize

I would say that we recognize that it has to stabilize. So we have to work more actively with this going forward. So it is a focus area for us going forward. We don't want it to continue to drop.

Perfect. That's all for me. Thank you very much.

Thank you very much.

The next question comes from Benjamin Wallstedt from ABG Sundell Collier. Please go ahead. Hi, Benjamin.

Hi, good morning, Joakim and Ebba, and welcome, Ebba and Augusta. I want to follow on some of the questions. In the CEO statement, you state you saw positive early signs for consumer confidence. And that makes me a bit confused as European consumer confidence has trended better since October 2022 basically. So I was wondering if you could be more specific about what signs you are referring to perhaps internally then?

As I said to Victor now, it's very much that we see that the Nordics are stable and even grow a little bit, as Joakim showed in one of the charts. I'm not sure exactly what page it was. It's you can look at Europe on a whole, but as we are a portfolio company, in the sense that we are in so many different markets, it is important for us to look at the individual markets. And when some of the very big markets continue to be negative, like Germany, that does affect us, even though maybe if you look at the aggregated level in Europe, it might show a different picture, if you know what I mean. So for us specifically, the Nordics help us to feel more confident in this, but we're not seeing it everywhere.

May I add also, consumer confidence there, Benjamin, has improved slightly, but still at very low levels. Also, we looked at our biggest market, Germany, where the propensity to buy still is very, very low, and the propensity to save still is on high levels, and in particular then when it comes to discretionary spend.

All right, perfect. And then I was wondering if you could perhaps expand a bit on the AOV. What are some of the levers you can pull to improve the AOV from here? You talk about working structurally with the AOV, and I was wondering if you could be more specific. What does this mean, please?

It really means the flow in the company as a whole. It starts with the designs, of course, and then it's what do we push in our marketing? What types of products? What do you then meet when you enter the site? What are recommendations of other rugs on the site? And then the flow all the way to the checkout with what types of offers can we potentially add uh when we uh when you when you're in the checkout and when you and when you wanna pay sorry so so you know it's it's there is no silver bullet here it's much more about reviewing every step of the way for the customer that's how we see it all right and i'm sort of following on that then it would be interested to hear your thoughts on the conversion rate it's 30 basis points lower younger year

roughly and higher AOE might sort of impact that even more. Do you have any thoughts on that dynamic, please?

Yeah, it's very much due to the channel mix and the fact that we have changed our strategy slightly there to push higher up in the funnel, which means more people come in to the site, but the conversion is lower. And as long as the total mix goes in the right direction we are fine with that switch.

And it has helped us to improve our score with Google and that is also one of the reasons why you see a lower marketing cost as share of net revenue.

Perfect and then finally from me I was wondering about your thoughts on the CDPO role is it not needed going forward you think or what are your thoughts there on hiring?

I would say it's an extremely important role but we have a very strong team in place who are working with that so currently they are filling those shoes in a really great way I have to say so it's not I'm not saying we're not going to recruit a new design ahead of the design and purchasing but but we're not seeing a rush in that area and considering we are recruiting for a new CEO it might be that that's something that the new CEO will have to decide on when he or she enters the ship perfect those were all my questions for now thank you very much thank you thanks

The next question comes from Johan Fred from SEB.

Please go ahead.

Hey, Johan.

Yeah, hi. Good morning, guys. Hi, good morning. Welcome aboard, Ebba. Thank you for taking my questions. First one on the organic growth. It declined 7% year-over-year. Could you elaborate on the split and drop between what's driven by price and mix and what's volume, please?

Yeah, and when you say volume, do you mean like square meters in volume?

Yeah, units.

Units, okay. I mean, you see that you can follow that If you look at the orders, because it's not that we have a huge number of carpets for each order. So basically one order you can put equal to one item. So there you can see that the volume drop, if you call it that, a bit more than 5%. And then the remaining drop comes from the average order. As goes with the price, it's not a major increase in discounting and we have increased the prices throughout the year. In Q2 we said that we increased with a couple of percentage points in the beginning of Q2 and we have also made some minor adjustments on a certain collection. So there is a price element up in a few percentage points. And yeah, and then there you have the rest of the equation. Is that answering your question?

Yeah, great. That was really, yeah, yeah, yeah. That was really my question. How much was driven by price increases? Very clear. Thank you. And a follow up on the current trading. You state that you are very, very excited for black month. And the Q4, of course, is an important season for you. Thus far into the quarter, what have you seen in terms of consumer demand and purchasing behaviors leading up to the sort of campaign heavy November and December? Are consumers waiting until the Black Week, or are there any tangible differences between the regions?

So we don't disclose on this month, but I can tell you that we have a very strong lineup, both in terms of how our marketing material is looking and our channel mix. We also have a very strong lineup when it comes to our offering to the customers. On a general note, we know that these types of big investments that interior design articles are, they tend to come when there is a discount and people actually wait to buy. But we will talk more about that in our Q4 report.

Okay, got it. And the final one on marketing, sort of building on the prior question, how has the overall sort of market campaign activity developed during the quarter? Are you seeing any differences across regions there and sort of how much of your, or if it's possible to quantify, how much of your lower marketing costs year over year are relating to your internal changes and, if any, how much is relating to and easing campaign pressure?

I wouldn't say it has to do with an easing campaign pressure. The big advantage of being a portfolio in the sense of portfolio of countries is that we can follow where we get the best return on investment on what we're doing. And the more knowledge we have and the more skill we have, the better we get at doing that. And that in combination with this differentiated channel mix is really what's driving it.

yeah and uh yeah if you want i can add you you asked on the regional development and this is the work that is is done weekly and actually daily where we put the money where it's best working for us so it's really hard to say it could be one week here and one week there or even days and weekends at different places where we focus um so so it's really hard to to give a something general about the regional development there.

Okay, my question is really alluding to prior quarters you have reported strong competition in terms of competition for marketing, especially from Chinese players. I know for reference, Timo has been reported to have acquired roughly 30% of all Google Ads last year. How has that competitive environment in terms of online marketing developed?

I think it's fair to say that we are always in a very competitive market. Of course, in a specific market, one competitor can push prices in one way and different in another market. But overall, what remains our focus is to look at the ROI, as Joakim said, on a day-to-day basis, so we can also shift to how to put it, work against our competitors, so to speak. Yeah.

Okay, thank you. Those were all my questions. Thank you so much, guys.

Thank you very much.

Thanks, Johan.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

Alright, we also have some written questions, right?

Yes, so I can go and read them and I think we'll try to skip those that already been answers. I have a question from Alexander here. Can you elaborate on OPEX growth in 25 and 26 and also in comparison to revenue growth? Well, the short answer is no. We don't give forward stating comments.

But we can say that it's, of course, something that we keep a very close eye on. And we want to make sure we balance both the revenue growth and the cost growth.

Exactly. And also we have stated that we will have one-off costs. We had those in quarter one, which is specified for the move to a new warehouse. And we'll be incurring some in the quarters to come on top of the investments that we'll make. But then, as Ebba says, we will, of course, monitor both personal costs and other external expenses so that we are rendering a good profitability. Then we have some questions about average order development. We have a question from Adam. We can take that because the question is, is that across the board or is a decrease larger in DACH? The answer is, we don't give those comments, but an average order in DACH is low, but we see a drop across the line.

Then we have a personnel cost increase in 2004, excluding the one-offs. What should we expect there going forward? Are you fully staffed for now, for the foreseeable future? I think you can see when you look at the development quarter over quarter, you can see that it is quite stable now. And we don't see, of course, we will grow in smaller areas or certain areas where we need to, but we are not expecting to have big chunks of hiring going forward. That's the correct answer, wouldn't you say? Yes, absolutely.

And then we have a last question here from Emanuel Jansson at Danske Bank. Can you please elaborate on how you will improve the average order value? And don't you think the upper funnel strategy might negatively affect the average order value?

So I did elaborate a little bit on the improvement on the AOV. I think the important thing is to remember no silver bullets. It's very much a work that needs to go on all throughout the customer funnel or customer journey with us. And then when it comes to the upper funnel strategy might negatively affect AOV, I would almost say the opposite, because what that means is that we increase the awareness of our brand over time. This is not either short, a short thing it's more over time that more people see our brand and we can also build on what the brand is with those people over time but that's not something that you will see in a quarterly report like this i would say and that was the final written question All right. Well, thank you very much. Thank you all for the questions. And thank you, Joakim, for today. We will have our Q4 report on the 6th of February. So we hope to see and hear all of you there. Thank you very much.