Puuilo Oyj

OMXH:PUUILO

Q1-2026 Earnings Call

[Juha Saarela, executive]

Good morning, good day, and welcome. Thank you for joining Puuilo's presentation of the first quarter results for the financial year which ended at the end of April. I am Juha Saarela, CEO of Puuilo. And with me is Ville Ranta, Puuilo's CFO.

[Ville Ranta, executive]

Good morning.

[Juha Saarela, executive]

In this presentation, we will review the key financial and operational highlights for the period from February to April, what is our first quarter of the financial year. After this presentation, you can ask questions by calling the line. We are happy to answer to your questions.

Here is the agenda for today's presentation. First, I will present the key figures and events of the first quarter of the financial year. And following that, Ville will provide a more detailed overview of the financial development during the same period. The third item on the agenda covers the outlook for the current financial year, including the forecast range for both net sales and adjusted operating profit. And next, we will briefly go over our strategy and key objectives. And as usual, we have reserved time at the end for questions.

Our first quarter is from February to the end of April. And here, you can see the key results. First, net sales. The sales for the quarter were just under EUR 90 million, showing strong growth compared to the same period last year. Total growth exceeded 18% and like-for-like growth was 6.5%. The main driver of sales growth was the increase in customer traffic, which continued to increase in both old and new stores. Net sales grew in all months of the first quarter. The average basket size was on the same level as in the comparison period. Spring arrived slightly earlier this year than last, which also contributed to the sales growth. And as we know, no 2 years are alike, and this year was no exception.

Gross margin in Q1 also increased and was 37.1%. The gross margin increased by 0.5 percentage points compared to the same period last year. The increase in gross margin was mainly driven by significant sales growth in private label products and a continued shift in the sales mix towards more affordable goods. Operating profit in the first quarter grew by over 31% and amounted to EUR 10.8 million, representing 12.1% of net sales. This was an increase of EUR 2.6 million and 1.2 percentage points compared to the same period last year.

And then earnings per share were EUR 0.09 compared to the EUR 0.06 in the comparison period. And we continued our strategic expansion by opening new stores in Varkaus, Savonlinna and Lohja during Q1. And end of the period, we operated a total of 52 stores.

Good. Now Ville, please.

[Ville Ranta, executive]

Thanks, Juha. As usual, let's start with the net sales. The net sales for the first quarter was EUR 89.3 million, and it grew by 18.4% compared to the previous year. At the same time, like-for-like net sales grew by 6.5%. The customer traffic in our stores grew by 18.4% and 6.9% in like-for-like terms. As you can already conclude from the growth rates of customer traffic and net sales, the average basket size was at last year's level.

In Q1, sales of all main product groups increased. Also worth mentioning is the strong performance of our online store in Q1, where we reported growth of 19.6% compared to the previous year. The start of the new financial year was, therefore, quite excellent from a net sales perspective. We opened 3 new stores in Savonlinna, Varkaus and Lohja, and their launches have been promising.

Then let's move on to the gross margin. In Q1, Puuilo's gross margin was 37.1% of net sales, and it grew by 0.5 percentage points compared to the same period of the previous year. The increase in the gross margin level was influenced by the sales mix and the increase in the share of own private label brands in net sales. Sales growth in our own private label brands was quite strong, growing by 37.7% during the Q1. Own private label brands are a key part of Puuilo's growth strategy. And as the figures show, the strategy is working.

Regarding the rest of the sales mix, we are in the same situation as we have already stated earlier. We sell relatively more goods at a cheaper price point than in previous years, which raises and maintains a good relative gross margin level. As can be seen from the sales figures in the previous slide, their volume has also grown. So the increase in the gross margin level has continued, and we are very satisfied with the result.

Let's move on to profitability. Q1's adjusted EBITDA was EUR 10.8 million, up EUR 2.6 million year-on-year. In percentage terms, adjusted EBITDA grew by 31.2% and profitability as a percentage of net sales was 12.1%. This is clearly better profitability than in the previous year, both in euros and percentage terms. The improved profitability is due to good sales development, increased gross profit and cost discipline. Operating expenses were 19.5% of net sales and the expense ratio decreased by 0.9 percentage points compared to the previous year, which we consider an excellent performance. As a result of these factors, profitability improved. I could also summarize here that all performance indicators were at good level and developed in the right direction.

This slide shows the development of Puuilo's inventory levels over the 3 same quarters. The inventory turnover rate slowed down, which is due to the initial inventories of 8 new stores and the increase in the imports of own private label brands. With the increase in inventory, we prepared for this year's spring and summer season a little earlier than normally as well as for the new stores to be opened in the first half of this financial year. We also prepared for possible supply chain challenges in advance during the first half of the year. In terms of timing, a relatively large number of new stores will be opened in the first half of the current financial year, a total of 5 new stores during the H1, of which 4 have already been opened so far with the Mäntsälä store already in the second quarter.

We actively monitor the inventory turnover rate and the long-term trend goal is to decrease the turnover rate. However, in short term, there may be a fluctuation between the quarters and years for the reasons mentioned above. In Q1, Puuilo's operating free cash flow was EUR 13.6 million, and it increased by EUR 11.4 million. The cash flow was influenced by good net sales development and, of course, good profitability, although the value of inventory increased slightly, as I explained on the previous slide. The good cash flow also reflects the spring season that has started well, and we expect this to continue in line with the Puuilo seasonality. Good cash flow makes Puuilo a good dividend payer for shareholders.

The company's net debt-to-adjusted EBITDA ratio decreased slightly compared to the comparison period due to strong EBITDA development. The current net debt to adjusted EBITDA ratio is in line with our long-term targets. The middle figure shows the adjusted net debt-to-EBITDA ratio graph, excluding the impact of IFRS 16, which decreased compared to the previous financial year. The ratio calculated excluding the impact of IFRS 16 is currently very low.

Puuilo's cash and cash equivalents were approximately EUR 27.7 million at the end of the quarter, and the company's financial position is stable. Puuilo's net debt, excluding the impact of IFRS 16, meaning the net sum of cash and cash equivalents and bank loans is currently EUR 22.1 million. The company's absolute net debt is also low.

And here are the figures in summary, which we already went through in detail. We are very pleased with the performance of the company. And then Juha will tell you about the outlook for the financial year '25. Please, Juha.

[Juha Saarela, executive]

Thank you, Ville. Good. Here is the outlook for this year. We repeat forecast that net sales will grow and be between EUR 425 million to EUR 455 million. We also expect operating profit to be between EUR 70 million to EUR 80 million. There are uncertainties related to the outlook such as the development of the still uncertain general economic situation in addition to changes in purchasing power and consumer behavior. Additionally, there are other unusual uncertainties in the outlook, such as the ongoing war in Ukraine, but also other potential geopolitical crises or international tensions that may have a direct or indirect impact, especially on the availability and price of goods, which can affect sales and profitability.

Good. And next, a brief look at our strategic and long-term financial targets. Our strategy runs until '28. Here is our key actions and objectives. The 5 key elements in our strategy are: first one, opening new stores and continuing our expansion in Finland. For this period, our target is to reach over 70 stores in Finland with the current concept. Second, the continuation of like-for-like sales growth in a market where we have a lot of room to grow and lots of untapped potential. Then maintaining and further improving our current position as one of the most cost-efficient operator in the sector. Then an omnichannel customer experience. An easy and fast shopping experience is an important factor for our current and potential customers. And last one, our aim is to be a responsible retailer. This theme includes the key areas and goals of our sustainability work, including a responsible supply chain, being a great workplace and our environmental and social responsibility.

And working towards these 5 objectives will allow us to reach our long-term financial targets, which are presented on the bottom half of the page. By the end of the strategy period, we aim to reach net sales above EUR 600 million. Then regarding profitability, our goal is same than before to reach adjusted EBITDA above 17%. And we aim to distribute at least 80% of company's net results to shareholders. And regarding net debt, our target is to keep ratio of net debt-to-adjusted EBITDA below 2x.

Good. During the past financial year, we opened 7 new stores. It is a record number of openings for Puuilo. All of these openings have performed in line with our expectations. This year, our expansion continues in line with our strategy, and we currently expect to open another 7 stores. Next week, next Wednesday, we will open a new store in Keljo Jyväskylä. Later in the autumn, a store will be opened in Iisalmi, and toward the end of the year in Heinola. For next year, we have already announced new store opening in Espoo. It will be our second location in the city. We have also announced a store opening in Hollola. Looking ahead to next year, we expect to continue expanding at a pace aligned with our growth strategy.

Good. Thank you. And now we move on to questions. So moderator, please open the line.

[Operator]

[Operator Instructions].

[Calle Loikkanen, analyst]

Can you hear me?

[Juha Saarela, executive]

Yes, we do.

[Calle Loikkanen, analyst]

Okay. Yes. Sorry, sorry. This is Calle Loikkanen from Danske Bank. Sorry, I was waiting for introduction from the line. But never mind, let's kick off. I have a couple of questions. And first, I was wondering about the private label side. And could you perhaps elaborate a bit on the success here? The growth was really strong in Q1. But can you open up a bit more that what sort of products have you been introducing? Is there still a lot of product and product categories where you can enter and so on?

[Ville Ranta, executive]

Yes, that's true that we are pushing the private labels up as we have done many years for now. And we have introduced a lot of new assortment in private label side. But maybe compared to the previous years, we are focusing more on the lower price tag items there. For example, if we are giving some examples there, those are typically, let's say, building accessories and these kind of things, also tools, also pet products and stuff like that. So the number of articles are growing fast at the moment. But like I said, the items are smaller than a few years ago.

[Calle Loikkanen, analyst]

Okay. That makes a lot of sense. And then I was wondering about the store opening or the pipeline of new store openings. You have 7 new stores for this year, of which 5 in the first half and then only 2 in the second half. And I was just wondering about the second half that, obviously, the team that's opening up the new stores have been really busy in the first half. Do they need a bit of holiday in the second half and only open up 2 new stores? Or do you think that there could actually be more than 7 new stores this year?

[Juha Saarela, executive]

Good. Let's say that years are not brothers. Sometimes we open more during the same period, quarter or, for example, in this year, 5 new stores in the first half of this year. Sometimes it happens, depending on the situation, negotiations. And of course, some of our new stores are new buildings. Sometimes the building projects ended, let's say, in the same time and so on. It depends on situation. We have resources to open stores, 7, even 8 new stores per year, and we have resources to open in same time, if needed. This is not a problem for us. But as I said that years are not brothers and this happens sometimes.

[Calle Loikkanen, analyst]

Okay. Okay. That makes a lot of sense. And then lastly on my side, in Q1, you benefited a bit from the warm weather, the early spring weather. But now, especially May, but also June have been colder than last year. So can you give any kind of comments on the trading in Q2 so far? I mean, basically May, early June trading? Any comments?

[Juha Saarela, executive]

Good. Yes, the word a bit is right. As you know, that our first quarter ends 1 month later than typically. And as we know that the spring time comes to Finland in different times, depending on the years. Now it's not time to do any conclusions how the first half is going or how our business are running. The time to do that is after the second quarter. But let's say, this is a very normal, very typical. If we compare this year to the past years, we can see that there are the same kind of influences in different years. This is very normal for us and the time to conclusion is after the second quarter.

[Operator]

The next question comes from Svante Krokfors from Nordea.

[Svante Krokfors, analyst]

A couple of questions. The first one, could you tell a bit about your business-to-business sales development? You have had some campaigns at least heard on the radio commercials a lot. So could you tell a bit about how that is developing?

[Juha Saarela, executive]

Our concept is a consumer concept. But of course, the B2B customers is one part of our customers and one part of our sales. We have had many, many years' service for B2B customers. We don't have the new business model at all. But we started with the, let's say, different marketing beginning of this year. And maybe it seems that we have something new. But of course, by that way, we try to get new B2B customers and improve our sales.

[Svante Krokfors, analyst]

Then I was cut off there during Calle's one question. But regarding the development in February to April, you said that there was growth in all months, but was April the strongest of the 3 months?

[Ville Ranta, executive]

Yes. Thanks, Svante. Yes, April was really good. And of course, the early spring was helping us during the Q1. And as everyone knows, April was really warm. Well, but the whole spring season has been unusually warm and the winter was really short. So maybe I can put it that way.

[Svante Krokfors, analyst]

And then the cost control seems to be quite good still. Do you see any challenges on the fixed cost side?

[Ville Ranta, executive]

No, not at the moment. And yes, you can see from the cost ratio that cost ratio came down. But I would say that it's more about scaling the cost. So we are not in any -- we don't have any kind of issues or situations with the costs at the moment. And we believe that we can continue this way.

[Svante Krokfors, analyst]

And you commented also that new store openings have all begun well. Have you had any disappointing new store openings at all? Or have all been equal successes?

[Juha Saarela, executive]

No. At the moment, all those openings have met our expectations. Of course, there are variations between new stores, let's say, after 1 week, 1 month after the opening. But of course, stores are different, areas are different, cities are different, but all those openings have met our expectations, and they are running as we are waiting for.

[Operator]

Next question comes from Arttu Heikura from Inderes.

[Arttu Heikura, analyst]

It's Arttu Heikura from Inderes. I have one question regarding private label sales, which grew quite strongly. So how sustainable do you see this growth? Were there some extra marketing during the Q1? And should we expect double-digit growth also in Q2 or going forward?

[Juha Saarela, executive]

Sorry, are you asking about the private labels in Q2 growing rate?

[Arttu Heikura, analyst]

Yes. I'm kind of trying to see that how strong -- how likely do you see the growth continuing also going forward? And because it was pretty strong in Q1, so is this sustainable?

[Ville Ranta, executive]

Yes. The strong growth came from the new articles, of course. But of course, there is some effect of the warm spring. So there is a new and old private label product mix in that figure. So as we reported in our management presentation that private label growth during the Q1 was almost 38%. We believe that the growth will continue. And of course, the background for that is there is now a lot of new articles. And like we said in our presentation that we are pushing the private labels up and our long-term target is to reach even higher share, let's say, 30% or something like that in the long run. And we are pushing the private labels towards that target. But now we have introduced a lot of new articles. And like I said, in tools, building accessories, also in pet accessories side, practically in all main product groups has been introduced a new private label product.

[Operator]

Next question comes from Miika Ihamaki from DNB Carnegie.

[Miika Ihamaki, analyst]

This is Miika. You mentioned that product mix was tilted more towards affordable goods, but also was one to drive your gross margin. So now going forward, there are some trends that you have also mentioned about macroeconomic factors improving, which could imply better consumption trends in Finland that could push up also those higher average selling price items in the consumers' basket. So my question is that how should we think about the gross margin development going forward, Q2, Q3, et cetera? Should we expect sort of similar gross margin run rate improvements? Or would you say that you see that the potentially higher basket sizes could sort of hamper the development, although you see your private label share increasing?

[Juha Saarela, executive]

Thank you. There may be -- gross margin varies between quarters. That is very normally and typically. But in future, we see that the private labels and growth of them is the main driver to our gross margin development. As Ville said and we have mentioned before that we try to push that share up year-by-year, let's say, 1 percentage point, even more, annually, and that boosts and drives our gross margin up in the future. And if we continue that work, it will maintain our gross margin.

[Miika Ihamaki, analyst]

Okay. And then just coming back to fairly strong like-for-like sales growth that you see this quarter, which was clearly above what we've seen in the previous quarters and last year. I get that there was positive impact from the usually warm spring perhaps. But have you seen that the increased activity would anyhow resonate with improved consumer outlook or confidence that you especially expect to help your operations in the second half of the year? So have you gained confidence through these figures and the customer development?

[Ville Ranta, executive]

Yes. We see that customer confidence, it hasn't changed still. So we are, let's say, more or less in the same situation with the consumer confidence. The economy is not growing. And warm weather, I would say that, yes, it explains, in some extent, the Q1 performance, but it's not the full explanation. Of course, as you see from the customer traffic growth numbers, there could be transition also from the competitors to our concept, but we can't say that what's the effect or amount for that might be.

Then if we look at the rest of the year, we know that, for example, the union agreements come into force. So there will be salary increases widely in Finland, and that might help to improve the basket size for the rest of the year. But let's see how it goes and how the overall economy goes and how these geopolitical tensions and customer minds are changing for the rest of the year. It's too early to say.

[Operator]

There are no more questions at this time, so I'll hand the conference back to the speakers.

[Juha Saarela, executive]

Good. And thank you for the questions and joining us today. I want to thank all our customers for trusting us. And a special thank you to all our employees for your continued hard work, commitment and flexibility.

Happy summertime to everyone.