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Good morning, and welcome to the RugVista Group Q2 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Michael Lindskog, CEO of RugVista. Please go ahead.
Thank you very much. And good morning and welcome, everybody, to our earnings call for the second quarter this year. If we turn to Page 2, let me please give you an introduction on the second quarter and some of the highlights. I think, as most of you have probably been aware of, that retail has been very challenging so far, and we continue to see that the market conditions are very challenging, and we experienced an especially challenging second quarter.
However, our focus has been and definitely very much in the near term will be to effectively navigate these conditions. I think, to start off, of course, the macroeconomic climate deteriorated further during the quarter. And that, of course, impacted the overall consumer demand. And what we have seen is that, for instance, consumer confidence is at or close to all-time lows in many of our key EU markets.
Inflationary pressure is resulting in reduced purchasing power. And all these factors, combined with, of course, the political unrest, geopolitical unrest is pushing down demand. And one indicator that we have access to is that we are seeing search volumes down 15% to 20% in many of the key markets during the quarter. And then second, of course, is that growth. Our growth was impacted by these conditions. So we ended at net revenue of SEK 21 million, which is close to a 14% decline, and our organic net revenue growth landed at negative 15.6%.
If we talk a little bit about our profitability, again, unfortunately, we had some external factors affecting that. Number one was our gross margins were down about 4 percentage points. There we have some internal as well as external factors with, number one, of course, higher discount rate compared to last year. We had some category mix effects, continued high cost for customer deliveries due to the fuel surcharges, in addition to a sharp appreciation in the USD, which impacted our sourcing prices.
And second is that advertising intensity continues to be high, which impacted our marketing spend ratio. It should be noted though that the ratio did decline slightly compared to Q1. And with the lower top line, we are seeing negative scale effect on our more fixed cost items, such as personnel.
Final note on the margin is that Q2 historic and typically is our seasonally least profitable quarter, but we were impacted also by external factors this year. However, I think it's important to highlight that we have a very strong financial position still. We are an organization or a company with no debt to financial institutions. We have about SEK 82 million in net cash position, and that's even after the challenging year-to-date performance, as well as executing the SEK 52 million dividend payout during Q2.
One definite highlight though is that we continue to really deliver on our #1 priority, which is maintaining and keeping our customer promises, and that's really proven by the fact that we maintain the all-time high NPS value of 68.
So let me first then move on to giving a bit of our business update. So let's move to Page 4, please. So just to start off, keeping track of our long-term KPIs or our KPIs related to our long-term ambition. Here, we can see again on the left graph that our NPS is still at the all-time high level of 68. Trustpilot score continues to be at a very high 4.8. So both of the metrics that we use to track customer satisfaction are still outstanding. In terms of the order count as well as attracting new customers, we did see those KPIs decline compared to last year as being very much in line with the overall market conditions.
Page 5, please. So again, a bit of a deep dive into these market conditions and highlighting the declining and deteriorating consumer confidence. We discussed this topic during the Q1 presentation as well. And of course, at the end of Q1, we have seen the numbers deteriorate. Unfortunately, the situation got even worse during Q2, which we can see here on the graph and highlighted by Sweden, Germany and France, with all of these 3 markets showing all-time lows or near all-time lows.
And as I mentioned, the declining consumer confidence, higher inflation, interest rates, et cetera, is all resulting in consumer demand being lower as indicated by the fact that we do see search volumes down 15% to 20% compared to last year.
Page 6, please. In terms of marketing spend and the marketing spend ratio here highlighted by the cost per visit and how that developed. If we look at the figure for Q2 at the very right of the graph, we see that it landed at SEK 6 on average, SEK 6 per visit, which is a marginal decline compared to the previous quarter, and a slight increase also compared to last quarter. And as the graph also shows is that really Q2 '21 is when this kind of new, let's call it, new or current CPV rate was established. And so that is kind of the situation where we're currently at.
If we move over to some of the financials, a little bit deeper into the financials, so let's move over to Page 8, please. As we said, the challenging market is and has affected our top line. We ended with group net revenues of SEK 21 million (sic) [ SEK 121 million ]. We did see some increase compared to last year within the B2B segment, that grew almost 9%. MPO as well as the B2C segment were down, however, by about 16% as both those segments target private customers.
On a regional level, for the B2C business, which is the vast majority of our revenues, we can see that both the Nordics and the DACH region had relatively sharp declines compared to last year. We are, however, seeing in Rest of World some highlights with some of the markets in especially rest of Europe performing at least relatively well.
If we move to Page 9, please, and focusing in a bit on our gross margin. Group gross margin for the quarter was 60.1%, which is a 4 percentage point decline compared to last year. The decline really driven by 2 main factors with, number one, the higher product expense ratio as well as shipping and other cost increases.
When it comes to the product expense ratio, we have experienced higher discount rates. Compared to last year, there are some category mix effect and also some effect within the categories. And then with the USD appreciation, it's been driving higher inventory sourcing costs. And customer deliveries are still up due to the fuel surcharges primarily. And just one quick note on the segment gross margins. We see that the MPO segment is especially negatively affected by the increase in customer deliveries, and that's driven by the geographical sales mix within that area.
If we move to Page 10, please. Looking a bit or highlighting some of our cost items in the P&L. I mentioned that our EBIT margin landed at 0.4% for the quarter, and that was a sharp decline compared to last year. We talked about the gross margin decline of about 4 percentage points. We had an increase in other external expenses, which primarily was driven by the marketing cost ratio increase, but also recruiting expenses as well as cost related to hosting and preparing our first public AGM back in May.
Personnel expenses are also up compared to last year, about 5.5 percentage points, a combination of multiple factors. So of course, number one, that we are more people compared to last year, and one could potentially argue that we were slightly understaffed last year. And of course, with the lower top line, we are seeing the negative scale effect, and we also had some additional costs related to the CFO change. And then finally, I think, as I mentioned earlier, the second quarter has historically been the seasonally least profitable quarter for us, but we had some additional external factors impacting profitability for sure.
If we move to Page 11, please. Here, I want to give everybody a perspective on our rolling 12 months. And as we can see, and especially with the focus on rolling 12 months EBIT, of course, with the performance year-to-date, the rolling 12-month number has declined, but the 12.8 percentage points is still a very healthy margin. And as I mentioned, the second quarter is typically the least profitable.
If we move over to Page 12, please. Digging deeper into our balance sheet. We increased our inventory by about SEK 19 million during the quarter. And that number pushed up our inventory as a share of LTM net revenues to 24.8%, which is an increase compared to last year, but also compared to our starting point for the year and slightly above our target range of 17.5% to 22.5%. Besides the increase in absolute numbers or value of our inventory, the real culprit here in terms of being slightly above the target range is the lower top line.
However, as we've mentioned before, our inventory risk in terms of fashion trends, et cetera, is very low. So the fact that we actually have a healthy inventory positions us well ahead of the upcoming peak season.
Moving over to Page 13, please. Strong net cash position. So let's start off on the right-hand graph of the page where we see that we're still within a net cash position of almost SEK 82 million, and that is even after the challenging year-to-date performance as well as the SEK 52 million dividend payout. If we look at the top left side of the graph, we see cash flow from operating activities. Of course, operational profitability deteriorated compared to last year, and we also had a cash outflow from working capital and that's primarily the inventory buildup.
Moving over to Page 14, please. I'd like to again just give a quick summary and also an outlook. And I think, number one, we have to admit that, of course, year-to-date market conditions have been extremely challenging and has negatively impacted our operational performance. Year-to-date net revenue is at SEK 307 million, which is down 11% compared to last year. Our EBIT margin year-to-date is at 7.2%, which is about SEK 22 million.
However, our financial position remains strong. We have no debt, SEK 82 million in net cash. Our rolling 12-month EBIT margin is still double digits, and our inventory position is healthy, so we're well prepared ahead of the upcoming peak season. We have taken actions in order to adjust to the current market, and these actions are showing a positive impact on our quarter-to-date performance. So our quarter-to-date being Q3, we did implement selective price adjustments to counteract the USD exchange rate development.
And that, of course, will have a positive impact on gross margin, and we've already seen that quarter-to-date. We've further increased our focus on marketing spend efficiency. That is also an area where we've seen improvement so far in the quarter. We've, of course, reviewed and adjusted our personnel plan for the rest of the year and really adapted that to the current reality and the current outlook.
And finally, I think I want to highlight that we did integrate a new system for integrating new carriers that gives us speed and flexibility in that area for developing a customer proposition. In addition to that, that is going to deliver cost savings. And we see already that being the fact, and we are currently live with the new system in Sweden, Denmark and Finland actually. And this rolling out new carriers will be an ongoing activity during the rest of the year.
And then finally, we are still very confident that we're doing the right thing by focusing on our long-term strategic agenda, while also navigating the current conditions. So we will continue to focus on ensuring high customer satisfaction levels as that is our #1 priority and that, for them, we see that as critical for long-term profitable growth.
We are working on making major improvements to our customer proposition. I talked about localizing our carrier setup. And of course, the new site is our most important project. We have an aim of having at least 50% of our revenue through the new site by end of the year. We have been approving our assortment during the fall with the many new designs introduced as well as filling some white spots that we had in our previous offering. And of course, we continue to have a high degree of cost efficiency focus in all areas. But of course, with the current situation, that is an extra important priority.
So with that being said, I think we are, as I said, working on the right actions, making the right adjustments that I am confident will improve our short- and long-term profitable growth opportunities. And with that, I would like to hand it over for any potential questions.
[Operator Instructions] The first question comes from the line of Benjamin Wahlstedt with ABG.
Just a couple of questions from me today. A question regarding gross margins. You talked about higher discounts having an impact this quarter. How should we think about this dynamic going forward given the higher inventory levels we can see?
Yes, that is correct that we did have higher discount rates compared to last year. I think the higher inventory position gives us flexibility in terms of how we navigate the rest of the year. Of course, pricing can be -- or discounts can be a lever to drive conversion or short-term sales and will always be a tool that we will try to use as effectively as possible. I think important to mention is that the price adjustments that we did implement were essentially during the beginning of Q3, or end of Q2, right around that area, so it had limited impact on Q2 numbers and we'll have more impact going forward.
Yes. Perfect. So if we look at Q3 instead, and after the price adjustments, what sort of gross margins would you say we can expect here? And what are the effects of the price increases been on the average order value? If you could just give us a bit more flavor on that?
Yes. I mean both of those numbers are improving versus the previous quarter for sure. We're still only about halfway through the quarter. So I'd like to not give a clear number until we actually close the third quarter. It should be mentioned that we do have a situation where July, August are typically smaller months. And September, it really marks the kick off, let's call it, for the peak season.
Yes. Perfect. And another question on the next quarter perhaps then. You also commented on efficiency gains in marketing towards the latter half of the quarter. Is it possible to get a sense of entry and exit rates in this regard?
Okay. Okay. Again, we saw slightly improving CPC or CPV development during Q2 for sure. And that is a combination of overall marketing additions, in addition to, of course, our internal focus and efforts to improve the marketing spend ratio. And we've especially seen positive impact of those efforts so far during Q3. And again, we're only halfway through the quarter, but we are at least seeing improvement in that ratio that are relatively significant, I would say.
Next question comes from the line of Carl Deijenberg with Carnegie.
So 2 questions from my side. First, on the current trading going into Q3. You talked about in the report here, search volumes aggregated and your marketing being down by some 15% to 20% in your markets on the top level. Do you see any improvement sort of market-wise there so far into Q3? Because I believe maybe that comparisons were on a year-on-year basis or at least in July and August, if I remember correctly. .
Yes, especially second half of '21, Q2, was relatively weak for retail in general. Again, it's a little bit too early to make a full statement in terms of how Q3 in total will turn out, but we are having cautious optimism. Maybe I've had this on the aggressive side, but at least we are hopeful that our efforts are paying off in terms of ensuring profitability, and that there will be opportunities for improvement in terms of profit in rest of the year.
Fair enough. And the second question is, on Slide 10, you highlighted a few sort of costs taken here in Q2 that could maybe in one way be viewed as, let me say, one-offs. For example, the CFO change here in Q2. Would it be possible to say, just on an aggregate level, that the cost here in Q2, both on the personnel and other operating expenses, that are sort of one-off for you? Just to understand sort of the underlying profitability ex that.
Yes. We had, of course, the discussion internally and with our auditors regarding what should be classified as nonrecurring or one-off costs. And we decided that these things, as one becomes more mature, are part of the business, However, compared to last year, of course, they weren't there last year. So the CFO change did not happen last year, so to speak; and the AGM, we did not have a public AGM last year. And so those are both impacting the year-on-year comparison. And the numbers are -- yes, they are not definitely double-digit million SEK, of course, but they are not [indiscernible] . So they are more than SEK 1 million for sure.
[Operator Instructions]
Then maybe I can answer a couple of questions that came in through the written line. And the first question is in regards to the number of employees and how that developed quarter-on-quarter and the associated personnel costs which went from about 17 million to about 20 million during this quarter.
And a part of that is, for sure, the CFO change and the costs associated with that. And there are also effects related to the salary adjustment period that happened sort of in the middle of the year, what's called, between Q1 and Q2, and of course, had full effect on Q2, but very limited effect on Q1.
Then the second question that came in was regarding the pilots of new marketing activities and that we performed during the quarter.
Those pilots proved actually very successful. We did a little bit of a 360, let's call it, marketing activity to really push Essentials, which is the value-for-money product range that we developed and introduced earlier this year. And there, in many of the new ad formats that we piloted, we saw very, very good performance compared to the benchmarks that we had access to. So that's promising for the future in terms of, over time, having an ambition to build a known and well-liked brand. However, with those type of activities, the return on investments are typically not short term. So we will evaluate how those activities will be executed, if at all, during the rest of the year.
Any more questions?
There are no more questions at this point of time. Should we conclude?
Yes. Let's do that.
This concludes our question-and-answer session. I would now like to turn the conference back to Michael Lindskog for any closing comments. Please go ahead.
So again, thank you, everybody, for listening. We are aware that year-to-date performance for sure has been challenging and significantly impacted by the macro conditions. We are still very committed and confident in our long-term agenda, and that is what we continue to prioritize in addition, of course, to ensuring that we effectively navigate the current market. Thank you. And until next time, bye-bye.