Rugvista Group AB (publ)

welcome to the rug vista q3 2025 conference call for the first part of the conference call the participants will be in listen only mode during the questions and answers session participants are able to ask questions by dialing pound key 5 on their telephone keypad now i will hand the conference over to the speakers ceo ebba lungerid and cfo joachim tovner please go ahead hi good morning everyone uh welcome to the q3

earnings call. I am Ebba Ljungerud and I'm CEO of the company and I also have Joakim Tuvner who is CFO with me here today. I'd like to start by talking a little bit about the photos or the images in this presentation you will see. These images come from one of our four collections. We have four collections, classic, modern, rustic and Scandinavian. And as I'm sure you can already see in this photo, this is the classic collection. This is our heritage, it's where we come from, with the unique rugs. So we have a lot of unique rugs that you will see here, but also new designs and some big centers that we've had for many, many years. So I hope you like them. The structure is as it always is. I will start with a business update, then Joakim will go through the numbers in a little bit more detail, and then we will finish with a Q&A at the end. If we jump straight into the business update, We are very proud, I have to say, of this quarter. Once again, we had good growth. We landed the top line on almost 167 million, so that's up 15% from last year. And organic growth, that's just north of 18% growth. And by some margin, it's actually our best Q3 ever, so very happy about that. If we look at the order count, we grew in orders. We did see a little bit lower order growth at the end of the quarter. I'll come back to that. But if we look here quarter by quarter, you see that it's more than 19% growth in orders. And at the bottom there, you see the rolling 12, which also continues to grow over time. When we talk about new customers, almost, well, 57,000 new customers compared to 49,000 new customers last year. So that's a 16% growth. And I think here it's worth mentioning that over time we tend to be on around 70% new customers. Q4, where we're at right now, is normally a little bit higher, but over time it's around 30% returning customers and 70% new customers. Looking at the average order value, that was flat year on year, 2,952 SEK. And looking at the development over time, if you take FX into account, it actually grew 3.1%. But you can see here that it's stable quarter over quarter, which I'm very happy about. And September was the strongest month. And coming back to the orders, we see that When AOV grows, the order growth is a little bit lower. So that is a very important balance. And you've heard me talk about it many times before. But we, of course, continue to work on this and it will always be a very important balance for us. Moving over to the profit, improved profitability, and that's even including our moving costs. So gross margin ended up on 63.4%. one percent higher than last year. We think this is a good level and the growth there comes from a lot of different things. We had lower discount rates in the quarter. We have continuous work on the freight costs. And we've also earlier in the year had some price adjustments through the nice price change that we did, which basically means that all currencies end in even numbers rather than just the exchange rate numbers. And looking at the gross margin for the period, January to September, that also ended up on 63.4%. And compared to last year, it's 1.2% higher than last year. Marketing spend, it's almost flat 29.9% versus 30.1%. It's higher than we've seen earlier in the year. And as we pointed out before, it tends to be higher in the fall. And of course, now we're moving into Q4 where the competition is much more than in other quarters. So it does fluctuate quarter to quarter. We see this year that there is a lot of competition already when it comes to the Black Friday. It used to be a day, then a week, then a month, and now it's almost a quarter. So that period is definitely growing over time. Sessions on site increased by 39%. This is partly due to the fact that we are marketing much higher in the funnel, which means that the traffic comes in and the conversion is a little bit lower, but more people come in and get to know our brand and our products. So this is, of course, still a big jump. We are now moving into more like for like comparables because we started with this more visual advertising about a year ago, but we're still growing. So we're very happy about that. And then last but not least for this slide, EBIT ended up on 12 million compared to 9 million last year. So that's a margin of 7.2. And that is including almost 2 million in moving costs for the quarter. So we're happy with this solid result here as well. Looking a bit more on the market climate, we see that customer sentiment continues to fluctuate. If we look here, we have three markets that we follow a bit more closely. You see that Sweden is moving up a little bit while Germany is backing quite a bit and France is stable even down a tiny bit. So for us being in 30 markets, this is of course something that we need to look at, but also balance. And we can't really rely on just the big markets driving our growth. And you saw that in the report and you've seen it before. For us, it really means that we need to optimize the spend and move quickly from one market to another. And it also means that the small markets are also important to us to balance. And just a couple of examples. Q2, Germany grew by 10% and now in Q3 it grew by 17%. And Sweden grew by 16% in Q2 and it grew by 6% in Q3. So it does vary a lot from market to market. And then I also think it's worth mentioning that our organic search continues to grow. We see both strong growth in branded search, which we think is very connected to that we are higher up in the funnel when we market and have much more visual ads. But we actually also see very good growth in non-branded search. And to us, it's a sign that our big efforts in SEO are paying off. And then now we are going into peak or we're actually already in peak. So just a couple of things from last quarter that have been important for this. First of all, the move has been finalized. Total capex of that will land around 45 million. Very, very happy with how that move has progressed. We've done it in a very structured way and we've had very little disturbances and I also think it actually would have been difficult for us to handle peak in our old setup so that's really great. We have a lot of new processes and automations and we will continue to work on that. This will now be continuous improvement. The assortment, the base of what we do, all our beautiful rugs. We have launched around 45 new designs this season. And we've also adapted both on sizes and colors on our most popular big sellers. And this rug that you see here is called Precious. And this is a hand-tufted rug from India that I really like. And we know a lot of customers like it as well. We have finally really kicked off personalization and getting personalized customer journeys. This is a big step for us and we're doing a lot of tests at the moment. This is of course also continuous improvement. For us who more or less always done one size fits all when it comes to marketing, no matter what the country or who the customer is, it is a big shift and it's really a way for us to utilize a new technology to communicate differently with different customers. And then last but of course not least in this slide is that we have stable and high Trustpilot scores, even though the move has happened. And you can see here on this slide that we are continuously on 4.7, rolling 12, which we're very happy about. And this is something we track very diligently as we know that the customer is liking us. It's really the base for everything we do. And with that, I hand over to you Joakim.

Thanks a lot, Ebba. So I'll start with the top line. And as you already mentioned there, the top line grew, net revenue grew by 15.1%. And in local currency, we grew by 18.4%. Looking at the region, we had good growth in all regions, DACH being the best, plus 26%, whereas Germany grew 17%, the Nordics growing 12% almost, and of which Sweden grew 6%. And then in the rest of the world, which is the rest of Europe, basically, we grew by 13%. And as you may recall from quarter two, the two biggest markets there, France and UK, were flat. Now in this quarter, France is plus 23% and UK is flat. But bear in mind then that over the past few years, not the last year, but over the past few years, UK has been a good source of growth for us. So all in all, a good growth in all regions. So moving on to cost ratios in the EBIT margin, the product expenses came down 1%. Eva already mentioned a few reasons, the biggest one being that we had a lower discount rate average over this year compared to prior year, but we also had this nice price increase that we did earlier in the year. Shipping and other selling expenses almost flat. So that sums up then to a gross margin increase of 1% due to the lower product expenses. Other external expenses, the biggest one there is marketing going down from 30.1 to 29.9. So that's a 0.2% decrease versus last year. And the biggest negative variance versus prior year is then the moving cost of 1.8 million, which is 1.1 percentage points of net revenue. Personnel expenses are going down 3.3 percentage points, and that's mainly due to that we had non-recurring cost in last year, but also a bit on the positive side from the economies of scale we get. In other operating expenses, we record the revaluation of assets and liabilities that we carry in foreign currency. And that's the only thing we have in this line. As you can see in prior year, this was an income of 0.5 and this year it's 0.7 cost. So it's a 1.1 difference. You can see at the bottom of the page, we note that there are some rounding differences that may occur. And here is one example of that. Depreciation and amortization. Here we have three major things. We have our lease agreements, we have the depreciation of the tangible assets and we have the amortization of our intangible asset that is our webshop. If we start with the tangible assets, then like Ebba said, we have invested 43 million. We have started depreciating those at the beginning of the quarter. So we almost have a full quarterly charge that we will carry going forward. That is 1.2 million increase, which is equivalent to 0.7%. Also, we have the new lease that we have for Lodgatan, our new office premises that has been added. And at the same time, we have the Limham costs still in here. That's about 1.2 million. We haven't included that in the moving cost. We were operating from that site. But as of 1st of October this year, we don't have that cost. We will not have that cost anymore. So all in all it sums up to an EBIT margin of 7.2 and increase of 1 percentage points. Moving on to inventory. So we have increased inventory by 14 million, which is normal during this period of the year. We build up for the quarter four. If we look to the right, we see the share of the last 12 months of net revenue, where we are at 19.4. It's in the middle of the target span that we have defined. It seems like we have decreased a lot versus prior year. We have, but we feel that we are well stocked up for the quarter four season that we are in. Then on to cash flow. Cash flow from operating activities increased and mainly due to the increased earnings due to the increased EBITDA. You can also see that the working capital decreases less than it did in last year. So in last year, we had more of an inventory build up than we have had this year. At the bottom left, cash flow from investing activities. This is a bit unusual for us as a company. This is the biggest investments that we have done. We have invested 33 in cash going out for the tangible assets and the intangible assets we stopped putting on the balance sheet on the 1st of July last year. So now we expense all those costs in the P&L. So all in all, to the right in the picture, despite having then invested 33 million intangible assets, we end the period with 29 million higher cash balance than the year before. So if I then try to summarize a little bit about good growth in all regions, you spoke about the positive average order value in local currency, it's plus 3%, it's flat in But in local currency, AUV is up 3%. And then on the balance sheet side, despite these investments in tangible assets, so we have an even higher cash balance than Q3 of last year. So we stand with a strong balance sheet. So I hand it back over to you.

Thank you. Let's see how if I can flip. Oh yeah, there we go. Yeah, so to repeat what you said once again, a strong Q3 leading into peak with both top line and customer KPIs are all on all time high levels. The fall assortment is here with lots of news in primarily modern and classic, those styles. And we're actually already seeing some very nice signs of new bestsellers in this group of rugs. And personalization is our focus. Of course, at the moment, peak is our main focus, but personalization will continue to be a focus going forward. So very excited that we have managed to kick this off finally. And with that, let's go over to the Q&A.

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 Walstedt from ABGSC. Please go ahead.

Good morning. First off, I'd like to ask about your comments regarding the end of the year. At the same time, I mean, it's optimistic. You're saying you have good momentum, but you also note that your growth in percentage terms might vary, something that I think will be interpreted as being basically a comment of softer growth currently. And my question is, could you clarify if that was the intended message?

Well, sorry. Hi, Benjamin. I think that, yes, we are going into tougher comparables and we have had fairly soft comparables during Q2 and Q3. But we are still seeing, we're still happy with how we're doing. But it's more pointing that out that we can. I don't know if you want to add anything Joakim.

No, I think we can just add that Q3 last year we were detracting, we were minus. We had a start of a good growth period in quarter four of last year. We have had quite a good order growth throughout the year with 20% and up 19 this quarter. And as we have been fighting the average order value, it's always like you point out several times, it's a balance between average order value and order growth. And the more we get the average order value up, of course, the harder it'll get to drive the same order growth as we've been used to.

Perfect. Thank you. You notice well that your gross margin strengthened due to a lack of high discount campaigns. You should have a gross margin tailwind from FX by now if I'm not mistaken due to the soft dollar primarily. Is this correct and if yes what is the magnitude of this tailwind?

It's correct that we should over time have that. The US dollar started to depreciate about the beginning of Q4. But it takes some time before we sell that through. We don't do that in a quarter or two. So there'll be an effect of that. However, we also have an impact on the top line. So as you know, we have about three percentage points on the top line in negative effect. So that will counter a part of that.

All right. So the tailwind from FX is expected to be larger in quarters to come on flat FX rates, basically.

Correct. Yep.

I was wondering as well if you could give us some additional flavor on the DNA development, please. What portion of DNA is related to having, I guess, triple or quadruple rent in this quarter? I think you said a leasing depreciation of 1.2 million from Limhamn in Q3 figures. That should be phased out. Could you say anything on sort of the run rate DNA with only the new warehouse and the buffer inventory in numbers?

Yeah, I mean, what we will leave out in quarter four is the 1.2 million for Limham. So that's 0.7. And then we are basically at our run rates. So that's the short story.

All right. So down 1.2 million, and that's a good estimate for a run rate quarterly in DNA. And finally, for me, then, Could you give us any indication as well whether or not the new warehouse is working fully as intended now or if there are still any sort of quirks that remain to be ironed out?

It's working fully as intended. And when I said before that it's continuous improvement, it's more about, I mean, you've seen the automation that we have launched now. And of course, there's more potential automation in the future. So it's more that we will continue to develop this over time. But it's up and running the way it was intended when we sort of projected the whole project, so to speak.

Perfect. That's all I had for now. Thank you very much.

Thank you.

Thanks.

The next question comes from Johan Fred from Seb. Please go ahead.

Yes, good morning, guys. Thank you for taking my questions. Building on Benjamin's question earlier, as mentioned, you stated that you had a strong end to the quarter. Could you just remind us how sales developed in September last year? i.e. should we interpret this comment as sort of if you're seeing good momentum into Q4 or is this solely a result of EC or year-on-year comparisons?

We had a moderately strong end of Q3 last year, right? The quarter was fairly weak last year, but it didn't end like weaker at least. So, yeah, it was okay.

Okay, so sort of a mix between the two. Yeah. Cool, cool. And secondly, sort of a more high-level question on sort of your guidance for volatile sales growth between quarters. You've now delivered several quarters of improvement across your key KPIs, and especially so in Q3. As we look into 2026, how confident are you that Vista can sustain sort of double digit growth? Or are you moving towards more the mid single digit trajectory based on on what you're seeing in your across your markets and sort of key KPIs and metrics?

Do you want to start and you can add on? I think I think we've done so many changes to the company that are sort of solidifying who we are as a brand and strengthening who finds us and where they find us. So I think that we have good trajectory going forward as well. It's very hard to put that into a number here, but I'm confident that we are on a good road, if I put it that way.

And then I think also that if we look back like two years, in the second half of 23, we had an extremely high order growth and we could afford, so to say, to drop in average order value, also had some tailwind on the currency. Then we entered into a period where we had still a very good order growth, but we dropped the same on average order value. And that was, of course, a very tough environment to be in. uh dropping all the benefits you got out from the higher volume we dropped on average order value now that the average order is starting to stabilize even up three percent then in local currency i think we have a sound foundation that that somehow the order growth we can get can be at least that on the top line and that's a good foundation moving forward

So you're confident that you can grow orders at a double-digit rate in 2026?

It's very hard to give you a number like that.

Fair enough, fair enough. Those were all my questions tonight. Thank you so much.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad.

All right. Then we have some written questions. I don't know. Is this the top here?

Yeah. So, no, let's...

Okay, so let's start with the first question. Can you quantify the expected annual efficiency gains from the new warehouse and WMS implementation in terms of reduced fulfillment costs, lower error rates or labor savings? The system is fully ramped up since the system is fully ramped up. So we've always said that this has not been a saving money exercise. It's much more been a case of ensuring that we can deliver on all our orders. And, you know, we have very high expectations on ourselves on how quickly we deliver an order. So it's much more connected to that. So we haven't actually communicated any sort of savings of this sort that you're mentioning here. Do you want to add anything? No. All right. And then Alexander writes, I was late in the call. Can you say something about an annualized level of depreciation going forward? Yes, you mentioned that now, but maybe you want to repeat it.

So what you see in the quarter is more or less the annualized level, the part of the depreciation that comes from the leasehold. We have also mentioned it's the Limham property that we will leave on the 1st of October or left on the 1st of October. So there's 1.2 million. of costs that we will not have in quarter four. And also the CapEx, the depreciation that we have on the tangible assets is almost a full depreciation you see in quarter three. It's a little bit, a tad more in Q4. And on the software part, on the intangible assets, we have about the same, we have the same depreciation every quarter.

Good. And then do you expect any currency tailwind going into Q4? And can you elaborate on when you purchase the rugs you are currently selling? Is there a lag in the SEC US development? Yes, you mentioned that as well just now.

Yeah, I did. And I can maybe repeat it. I mean, currency tailwind. I mean, we do expect a currency headwind in Q4 on the top line. We had 3% headwind now in Q3. That would probably be at least that. It depends on how it moves, of course, but it'll probably be more like 4% to 5% headwind in Q4. Then, as I guess you're referring to, we get a lower purchase cost now that the US dollar has depreciated. So that's correct, but it'll take some time before we see that coming into the P&L, and it's likely to come then in Q4.

And maybe even a little bit later. Yeah, exactly. The next question is sort of on the same topic. The Indian rupee has lost almost 20% in value this year. When and how will this show up in your numbers? We don't... really buy in rupees. So that we don't see so much of.

No, I mean, that's a negotiation, of course, with the suppliers, but we have to look at, you know, the labor inflation cost and the wool cost, et cetera, when we look at the purchase price that we have mostly in euros in India. So it's more part of the negotiation. It's not something we directly see in our results. Then we have a question from Victor Hansen at D&B Carnegie Ager. Other external costs are up significantly year over year, 62 million in quarter three. What is driving this? But I would say, I mean, the top line increase, of course, drive the marketing costs up a lot, about 6 million, a little bit more than 6 million. And then we have the moving cost of 1.8 million. So that's the main explanation to that. Congratulations on your appointment as permanent CEO, Eva. Will you be relocating from Stockholm to Malmö?

That's actually not decided, but I will most likely continue to go back and forth. But I spend most of my week in Malmö anyway, so it will probably be the same as before. But, you know, when you have this type of job, you also have a lot of work in other locations than in the office. So it's a bit of traveling here and there, but it's nice. Thank you.

What are the biggest opportunities Ragvista is currently missing and why are these being missed?

Very good question. I think that we have been... a little bit weak on our brand. And I think that there's still work to be done there. I mentioned in the call that almost 70% of our orders are coming from new customers every quarter. A person on average buys a new rug every three to four years. So you could argue that that a customer is always to be seen as a new customer. But of course, there is still work to be done with our huge database and the people who have already purchased the rug from us. Personalization I talked about, I think we have a lot of work to do there. But really the foundation I think is that we are increasingly good at designing beautiful rugs that people will want to buy. And then I think it's the biggest opportunity. It's the same question, actually. The biggest opportunities that Vagvista is missing now and why.

Okay. And then last, we have another question, but I think we have already answered that. So that was the last question we got there about.

Yes. So thank you everyone for dialing in. We are now going to go back to working with peak and then we will see you for the Q4 report, which I believe is on the 5th of February.

Yeah.

Thank you. And goodbye.