2/6/2025

speaker
Ebba Ljungerud
Acting CEO

Hi, good morning everyone. Hi and welcome to this Q4 earnings call. My name is Ebba Ljungerud. I'm acting CEO of Rugvista and I have our CFO Joakim Tuvner with me here as well. We will do this presentation in two parts. First I will do a business update and then Joakim will take over and go through the numbers in some more detail. And then, of course, we will finish with a Q&A at the end. And before we start, I would also like to point out that all the images in this presentation are from our new campaign, Solid Simplicity, where we showcase some of our very, very beautiful single colored rugs. So have a look at the photos while we go through. And starting with the business update, we are super happy to announce that we had an all-time high in net revenue. We ended up on 246 almost million versus 233 last year. October started a bit on the slow side, but then when we moved into November and December, it picked up. We had a very long Black November or Black Friday, I should say, campaign that lasted all throughout the month. which really paid off with an all-time high in both November and the quarter as a whole. Moving on to orders, our order count increased by 17.1% compared to last quarter. And if we look here, you can see the development quarter by quarter. It fluctuates a lot, so it's very driven by seasonality. But if you go back also and look at Q4 2022, you see the jump there is 28% so the comparables were actually quite tough from the year before as well we're very happy about this and then and total orders for the year ended up on 327 000 which was also an all-time high for 2024. Moving on to what brought us all these orders were our customers. We had an all-time high in new customers, 87,000, which was up 18% from last year. That meant that we ended the year on 240,000 new customers, which actually also is an all-time high compared to all our years. You've heard me talk before about our average order value, AOV, that we need to focus more on that. Q4 is a difficult quarter because it's very driven by discounts. But you will for sure hear us talk a lot about this in 2025. We know that and we see that the sentiment in the world is tough and that customers trade down. But we also recognize that we as a company have a lot to do in this area. So we are focusing on this in our assortment, in our customer journeys, in our marketing and really all of the initiatives that we do. This is not a silver bullet. There will be many small changes throughout the year. And just to show you the development over time, you see that it has dropped a lot, not just from last year, but also from last quarter. So, yeah, it's a very important focus area for us. Moving over to the profit levels, we have very stable profit levels. We improved our gross margin to 62% this year. The balance is important. We want to make sure we are in the right balance there for our customers. But we have managed to improve our shipping costs a lot throughout the year, actually, which we saw an effect of in Q4, even though we had so many orders. We're also continuously working with all our suppliers in this area. Marketing spend increased to 32.9%. If we look at the quarter, as I said, October started a bit slow, so we decided to invest more as the quarter moved along. And it also gave great effect on top line. If we look at the year, we ended up on 31.1% in marketing spend versus 31.4%. the year before. And our long-term trend is really that we are going down a little bit in the marketing spend. We focus on a couple of different areas to drive this shift. And the first one is that we look at the efficiency in our channel mix, where we have shifted to marketing more higher up in the funnel, which basically means that we meet the customer when they are earlier in the process of actually buying something. Since we shifted the site, we have better organic traffic to the sites. And we also continue to work very actively with our existing customer base through our CRM. And then EBIT landed on 29.3 versus 29.4 last year. So that was an EBIT margin of 11.9. Last year it was 12.6. If we move over to the market climate, we do continue to see customer sentiment decreasing. We see it in a lot of countries. Here are three examples of important markets for us, Sweden, Germany and France. All of them are dropping in December. We partly believe this is due to political uncertainty in the world that we've seen the past couple of months. But of course, it's something that we keep very close track of. And it is important to us that what happens here, it depends, it also drives how we work internally with average order value, et cetera. I said this as well, but the price, we see that customers are price conscious continuously. Even when we drive campaigns that are pushing, for instance, handmade rugs that are a bit more expensive, we see that customers shift down. So this continues and we also see it continue into 2025. When we look at our focus areas going forward, our customers and our products, they continue to drive these focus areas. But I would also, of course, like to mention our huge project, which is our office and warehouse move that is progressing according to plan. We will move during the summer this year, and everyone is very excited about that, actually. It's going to be a nice lift for the whole company. We continue to focus on our customer journeys and here it's very much about how do we make them more personalized, how do we make sure that the right customer sees the right rug when they come onto the site. We are also looking a lot at our assortment, we continue to work with our collections and we also continue to expand on our own designs going forward. As always, I would like to mention our customer KPIs that we are very, very proud of. Here you see to the left, you see our Net Promoter score and to the right, you see our Trustpilot score. Net Promoter goes from minus 100 to 100 and Trustpilot from 0 to 5. so they are very very high and even though q4 actually was quite tough with all the orders we had and uh also our all of our shipping partners had a lot of orders uh we still managed to keep the high levels so uh super proud of uh our teams for doing that and with that i hand over to you joachim thank you eba so first um to the top line then and comment on our comps um

speaker
Joakim Tuvner
CFO

We had a relatively good quarter in four in 2023 with plus 14% that you can see here in the image in prior year. and 28% order growth. Coming in then to quarter four this year, in 24, we grew 5% in the quarter in net revenue, thanks to, like Eva mentioned here, a 17% growth in number of orders and an average order value decline of 10%. Our largest segment, B2C, our business unit, is up by 5.5%. B2B was down by 2.9%. And then our smallest segment, MPO, which is mainly Amazon, is up by 45% driven by new campaigns or new campaign types. If you look to the right here in the picture, how we perform regionally. Dash, we came coming in with good comparables. And despite that, a 2.8% growth. Nordics continued to perform really well with plus 15.7%. And the rest of the world, which is mainly the rest of Europe, we increased by 2.3 percentage points, but with big variances in between the countries in this region. So all in all, like Eva mentioned, we have a record black month and a record quarter four on the top line. So I'll move on to the gross margins. So also here, if you take a look at the last few years, so from 2022, 23 and 24, we have had 62.0 to 62.2% in gross margin. So it's been very stable if you look at the years. But it can vary, of course, up and down in between the quarters. In this quarter we came in with a 1.8 percentage points improvement versus prior year so we ended at 62.1 and generally as the average order value drops as it has been doing our cost for shipping is more challenging as this cost is not 100 variable. But then despite our decreasing average order value, this shipping cost percentage has been going down as a result of the improvement efforts in the logistics. And that explains 1.4 out of this 1.8 improvements. NPO came in close to the prior year and B2B and B2C are fairly close to where we are as a total, whereas we are expanding the increase with this, mainly this lower shipping cost to customers. So overall, a stable gross margin. So I'm moving to the cost ratios. So I just spoke about the margin variances versus last year and then the same explanations apply to the goods for resale. Bear in mind here that the goods for resale is not exactly 100 minus the gross margin as the other income is included in the gross profit as well. There are some rounding differences that we point out in this slide as well. Onto other external expenses, those are up by 0.9 percentage points, and that is explained by the increased marketing spend that Ebba mentioned. So coming into the fourth quarter, the October month started quite slow and then we increased the marketing spend to somehow safeguard the top line in what is our seasonally most important period and it also contains the black month on top of that. Personal costs, personal expenses up by 1.3 percentage points. so here in the prior year we had our berlin personnel as external so we have insourced that during in the beginning of 24 and these expenses have moved then into our payroll also as from quarter three this year We expense all of the development efforts that we do on our web platform. So the years 22, 23 and the first half of 24, we capitalized all such expenses on the balance sheet. And that impacts the increase also in personnel costs that are now hitting the P&L. And also we have the general salary increases. In the other operating expenses, we have the exchange-related effects. Depreciation and amortization is up by 0.6 percentage point. This is mainly driven by the amortization of our intangible assets, our e-com platform that we started with end of quarter two. Also, this is the IFRS adjustments for the properties that we rent. So when we have indexed rental contract, this increases our depreciation. So all in all, we are 0.7 percentage points lower in our EBIT margin, landing at 11.9%, driven down by the higher personal and marketing cost, but on the positive side, a lower cost for goods for resale. So I move on to inventory. Which is after Goodwill and normally it's our second biggest asset. Now it's actually our third cash being the second for the group in this quarter. Generally in Q4 we decrease inventory and this is what we did. We increased by 22 million versus September. Our target range is to be within 17.5 and 22.5% of the last 12 months of net revenue. And we are in the low range now, 19.2%. And this is according to plan. This is where we want to be at the end of quarter four. And this contributes to our good cash flow during the quarter. So I move on to that. So the earnings are on par. with prior year and also we can see a somewhat seasonal improvement of our our working capital and it is seasonal in two senses one is that we have decreased inventory that i mentioned and another one is that as we increase sales during the quarter compared to the quarter before we accumulate more vat during the quarter then we actually pay for the quarter before And then down in the picture, cash flow from investing activities has changed. We stopped activating the development cost for the Econ platform in quarter two. And here in the balance sheet, we see instead investments in our new office and logistical hub. We have earlier mentioned that this will cost about 55 to 60 million. And here you see the first 10 million out of that. So our cash position at the end of the year was 219 million up with 68 million from the last quarter and an improvement of 11 million versus last year. So to summarize the cash flow and balance sheet part, we have good levels of inventory where we want to be. We have a solid balance sheet with no interest bearing debt to financial institutions, and we have a good cash position. So with that, I hand over back to you, Ebba.

speaker
Ebba Ljungerud
Acting CEO

Thank you Joakim. All right, so to sum up this Q4, we did end the year with a very strong quarter that we're super happy with. We are continuing to focus on our customer journeys, but we're really especially looking more and more into building differentiators depending on what one searches for when one enters the site and how we can make it more personalized. Then if we move on to the next one, we see an uncertainty among our customers, both in the general sentiment, but also how they act on site. But with this, I would also like to say that we have several all-time highs with the great order growth and customer growth that we really can continue to build on in 2025. As Joakim mentioned, we have a strong cash position and our board of directors have proposed a dividend of 1.25 SEK per share. Yes, and with that, I think we are finished and we move into the Q&A.

speaker
Conference Operator
Call Moderator

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Benjamin Wallstead from ABGSC. Please go ahead. Good.

speaker
Benjamin Wallstead
Analyst (ABGSC)

Good morning. I was wondering if you could elaborate a bit on your Black Month strategy this year. I note your product margins were actually better year on year, which strikes me a bit odd, perhaps, if a larger share of sales take place during campaign periods. So any additional flavor on that would be appreciated.

speaker
Ebba Ljungerud
Acting CEO

Yeah, so the first, I think, change or development that we have done is that we had a longer campaign. We started almost before November started and then moved on all the way throughout the beginning of December where we had Cyber Monday. So that was a shift from before. And then if we look at the COGS, it's very much driven by the improvements in our shipping costs. which helps the total number, so to speak. Anything you want to add, Joakim?

speaker
Joakim Tuvner
CFO

No, I don't want to give away too much, Benjamin, but there are, of course, additional charges during the quarter on freights, and those are negotiable, and that is part of the freight improvements.

speaker
Benjamin Wallstead
Analyst (ABGSC)

Perfect. Does product mix have anything to do with it? I mean, the signed drugs have high gross margins on average, right?

speaker
Ebba Ljungerud
Acting CEO

Not really in Q4. We still see this, as I mentioned, we still do see that our customers tend to trade down a little bit in terms of both how expensive the rug is to start off with, but also in size. It's not 100%, I would say. It's more based on the freight improvement, cost improvements.

speaker
Benjamin Wallstead
Analyst (ABGSC)

And then a question on the strong Nordics growth. I know the market is probably too fragmented for you to really have a strong view here, but would you say there are significant differences in how your market share develops between regions or alternatively your efforts in the different markets? I could explain this large discrepancy.

speaker
Ebba Ljungerud
Acting CEO

We do see that the customer sentiment in the Nordics is improving. And I think there might also be a little bit of help that the brand is known, especially in Sweden. But in general, Our view is that the general sentiment is a little bit better in the Nordics and that helps driving the growth. When it comes to how we push our marketing, as I said, we do follow how the countries are developing, not just in how they buy with us, but also the sentiment. So when we see an uplift in the Nordics, yes, we push a little bit more in the Nordics.

speaker
Joakim Tuvner
CFO

And also I think, Benjamin, when the economy turned down, I think we saw that Sweden was quite early into that recession. And I'm not the judge to judge that, but I think we see now as Sweden actually moves out of the recession, maybe sooner than some countries, especially Germany. A high share of loans being on a variable interest rates and interest rates being lowered sequentially a couple of times. So hopefully there is some optimism coming back here in the Nordics.

speaker
Benjamin Wallstead
Analyst (ABGSC)

Yeah, absolutely. Sweden started turning one quarter ahead of the other regions. in the downturn, so let's hope it's the other way around this time. I was also wondering about the cash position here. The room for dividends or other sort of measures is very large. I appreciate your financial targets suggesting lower dividend this year versus last, and also that it's a board decision. But nonetheless, what are your thoughts on this?

speaker
Joakim Tuvner
CFO

Well, I can answer to that, Dan. I would assume the market expects half of our net profit and this is what the board has proposed. We have the biggest project that we have had as a company ahead of us with a lot of capital expenditure and so on. So I think it is kind of a strength that we can continue with according to our policy. And maybe this is not the moment to give an extra dividend just ahead of this very large project. So I think it's prudent. And as you say, we have room probably for more. But at this point of time where we are ahead of this very big project, I think it is prudence.

speaker
Benjamin Wallstead
Analyst (ABGSC)

Thank you very much. That's all from me for now.

speaker
Ebba Ljungerud
Acting CEO

Thank you, Benjamin.

speaker
Joakim Tuvner
CFO

Thanks.

speaker
Conference Operator
Call Moderator

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions. All right.

speaker
Ebba Ljungerud
Acting CEO

Then we have one question here, which is, can you talk about how you see the competitive landscape in the Nordics and DACH? Has this any impact on average order value? Maybe I'll start Joakim and you can fill in. I think that our part of the world or our segment is quite competitive, which means that we always see a lot of competitors coming and sometimes going, but very much coming. And quite a lot of them are focused on a niche whereas we have the whole vertical. So I don't think this is something that is different now compared to other times. I think that this AOV drop is more driven by the general world outlook more than this. And I think in our case, we can be better at also making sure that we push the right rugs both on site and in all of our communication. Yeah, what do you say Joakim?

speaker
Joakim Tuvner
CFO

Yeah, not much to add. I can say that, as everyone knows in e-commerce, Germany is one of the toughest markets, the biggest market in Europe. It's one of the toughest, higher returns generally, and companies face lower average order there. The customers are price sensitive. So that is, of course, a very competitive market. There is one more question here from the same person, Philip. How is the organic traffic trend moving? Any significant shifts?

speaker
Ebba Ljungerud
Acting CEO

I wouldn't say significant shifts. We see an increase in organic traffic ever since we shifted to the new site or sites, I should say. But it's not a huge shift. It's more gradual increase in the organic traffic.

speaker
Joakim Tuvner
CFO

Okay, thanks. And then we have a question here from . Can you speak to the change in the marketing strategy for this quarter?

speaker
Ebba Ljungerud
Acting CEO

So I would say that our change in the marketing strategy, I talked a bit about it in Q3 as well, or the Q3 report, but I would say it happened a bit earlier. And the shift is really based on three things. Where the first one is that we are shifting to marketing a bit higher up in the funnel, which basically means that it's more, inspirational marketing, if you will, and not so much focused on, I know that I want to buy a round red rug. So that has shifted in several ways for us. First, because it just brings in a lot more traffic to the sites and customers come in earlier in their buying process. The second one is very connected to the previous question that since we saw the site shift, organic traffic has grown. And lastly, we are working much more actively with CRM these days, which also helps this. So the change in the marketing comes from this and has been going on for a while. And then in Q4 specifically, as you said Joachim, this is a very, very important quarter for us. So when we saw a bit slower start in October, we made sure that we invested so we could protect the top line in this quarter.

speaker
Joakim Tuvner
CFO

Thanks.

speaker
Ebba Ljungerud
Acting CEO

Anything you want to add to that? Not really.

speaker
Joakim Tuvner
CFO

Thank you, Ebba. So that was the last. No, sorry. We have one more question here from Adam. Have Benuta taken market share in Sweden? Oh, that is something we don't know.

speaker
Ebba Ljungerud
Acting CEO

No, and it's nothing that we have seen. So not to an extent where it's been visible at least. But I think they probably know the answer to that question better. But it's not something that we have seen in general in Sweden.

speaker
Joakim Tuvner
CFO

Okay, now it seems that was the last question. No, one popped up from the model at Danske Bank. What does the average order development look like in the Nordic region compared to the rest of the group in quarter four? Down 10% year over year or less?

speaker
Ebba Ljungerud
Acting CEO

I don't know if we disclose the individual regions.

speaker
Joakim Tuvner
CFO

No, we don't. We don't do that. I mean, I just mentioned the general rule that a lot of companies face that in Germany, maybe not that because they have Switzerland as well. But in Germany generally, I think companies face lower average order. It's more price sensitive markets, but we cannot comment on how it develops in between the region there, Emanuel. Let's see if there are more questions coming in. No, that seems to have been the last question.

speaker
Ebba Ljungerud
Acting CEO

All right. Well, thank you very much for dialing in. And thank you Joakim. Our next report, which then will be Q1 2025, is the 8th of May. So speak then. Thank you for attending.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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