Stockmann Oyj Abp

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Earnings Call Transcript

[Susanne Ehnbage, executive]

Good morning, everyone. I'm Susanne Ehnbage, CEO of Lindex Group, and I would like to warmly welcome you to the first Lindex Group Media and Analyst webcast.

Since the company's name change, our company's fundamentals remain the same, and we have a clear target to create sustainable and profitable growth.

Today, I will present the Lindex Group's first quarter results together with our CFO, Annelie Forsberg.

Let's continue with the agenda. We will start with a brief business update for both divisions Lindex and Stockmann, followed by a financial update of the first quarter. And in the end, we will take a look at the division's strategies and how we are implementing them in 2024. After our presentation, we will also have a Q&A session, where we will answer your questions.

And we can now move on to the next page, please. So let's begin with a business update for Lindex Group as well as the Stockmann divisions, and let's first look at the group's highlights for the first quarter.

In the Q1, Lindex Group's underlying revenue grew, but the result was impacted by the timing of Crazy Days for Stockmann division, which was also expected. And added to that, we had increased freight cost for the Lindex division.

In 2023, the Crazy Days campaign was partly ongoing in March, while in this year, the campaign was held at the beginning of the second quarter in April. The Crazy Days timing impacted the quarter negatively, both in terms of the revenue and results and excluding the negative impact of the timing of the Crazy Days, the group's underlying revenue increased.

Positively, the Crazy Days in April also performed better than previous year. The Lindex division continued with higher revenue than previous year and also gained market shares.

And as I mentioned in the beginning, the parent company's name changed during the quarter and in March, our Annual General Meeting decided to change the company's name from Stockmann plc to Lindex Group plc. The name change reflects the Lindex division's strength and role in the group's business. The name change does not have an effect on the Stockmann department store business, which continues with the Stockmann brand.

During the spring, we have also seen good progress in the restructuring process. In February, we settled the dispute with [ TSOP ]. And after the review period, we reached a settlement agreement with Nordika, which means that there is only 1 disputed claim left.

Let's then move on to the group's revenue in the second quarter. And as earlier said, the group's underlying revenue developed positively, even though it declined by 2.8% in total. The Lindex division outperformed the market development and grew with 2.7% in local currencies and continued its growth journey across all main markets, both in physical stores and in digital channels.

The clear reason behind the revenue decline is the timing of Crazy Days, as I already mentioned.

Then let's take a look also at the result. And as said, the group's adjusted operating result was impacted by 2 things. It was the Crazy Days timing and higher freight costs.

So next slide, please. For the Lindex division, we continued to outperform the market -- the average market growth and increased sales in both physical stores and digital channels, where womenswear was our best-performing category. We had a strong digital growth of 8.9% and strengthened the digital share of 22.9%.

We continue to increase the number of customers, both in terms of new and active customers. During the quarter, we have continued to expand through partners and launched on Zalando in Denmark. We have now in April, also added Austria and Beijing and are also -- so far live and selling in 5 markets with Zalando.

In addition, we have also launched Closely with Magasin du Nord in Denmark and that was in February, and we have increased to 7 kids stores with Manor in Switzerland.

Our crucial ongoing investments are progressing well. We are working intensively with the implementation of our new highly automated omnichannel distribution center and the implementation of our digital store program with rollout of a new point-of-sale system and also RFID technology into all of our stores. And this is also continuing with full speed.

We have now RFID fully rolled out in Finland and in the DC, that is distribution center. And now during April, we have also started the rollout in Norway. We are progressing with our femtech brand Female Engineering and our innovative assortment, where we have introduced the new product category Period Proof Swimwear, [indiscernible] women.

During the quarter, we have also launched Lindex inspiring kidswear concept Made for Play. And now in April, we released our new underwear concept Underwear for Life, that captures women's real life and her needs.

On the next page, the Stockmann division proceeded well, improving operation efficiency. It continued with successful cost savings, which amounted to EUR 1.6 million in the first quarter. In addition, the gross margin improved due to good inventory management, which meant right levels of inventory intake and also reduced levels of slow-moving items.

In March, the Stockmann division started to plan changes to improve efficiency, simplify management structures as well as clarify roles and responsibilities. The planned changes will affect the part of the division's personnel in all 3 operating countries, that is Finland, Estonia and Latvia. And in Finland, the plans were addressed partly in change negotiations, which sure concluded after the reporting period now in April.

In total, the plan changes are estimated to generate annual savings of EUR 2.7 million from 2025 and onwards. We also continue to develop Stockmann's unique offering and launched Kiko Milano cosmetic brand exclusively in Finland. And so far, it has been very successful and attracted especially young customers.

Stockmann.com was shortlisted for Online Store of the Year competition in Finland and the winner will be announced during May. And we are happy to be one of the finalists.

And finally, I would like to comment once more that the Crazy Days campaign in April performed better compared to previous year.

Let's then move on to the next slide, please. I would also like to take the opportunity here today to highlight our recent climate achievements. In the first quarter, we published our sustainability review and finalized also the climate calculations for 2023. And what we can see here is as a group, we are connected to both growing the business and reducing the greenhouse gas emissions. And our latest figures prove our good progress in reducing emissions.

Lindex Group's total greenhouse gas emissions decreased by 11% during last year. And if we look on a little longer perspective, the Lindex division has already achieved a reduction of 41% since 2017 and at same time been growing the business. And in Stockmann, we improve the energy efficiency and reduce the use of electricity in all operations by 11%.

Next slide, please. Lindex Group guidance, it remains unchanged. We expect the revenue to increase by 1% to 3% in local currencies and that the adjusted operating results to be between EUR 70 million and EUR 90 million.

Now I would like to give the floor to Annelie and the financial update.

[Annelie Forsberg, executive]

Thank you, Susanne, and good morning, everyone. I will now walk you through the key financials of Lindex Group's first quarter so we can go to the next page, please.

Starting with the Lindex division's performance, we can see that Lindex continued its growth journey and outperformed the market, as Susanne already mentioned. The revenue increased by 3.3% and in local currency, the increase was 2.7%.

The sales increased across all main markets for both physical stores and digital channels. We were particularly happy to see growth in the digital channels, which is strategically important for us. The digital revenue accounted for 22.9% of the revenue.

The best performing category during the quarter was womenswear. Customers' average purchase increased and the number of active and new customers continued to grow.

Lindex's gross profit remained at the comparison period level, but the gross margin percentage declined to 62.7% due to higher freight costs and negative currency impact. The freight cost increased as a result of unexpected logistic challenges in the Red Sea.

This meant that Lindex adjusted operating result decreased by EUR 1.4 million, but when excluding the negative impact of the higher freight cost, it developed positively.

So then let's look at Stockmann division on next slide. And for the Stockmann division, the timing of Crazy Days campaign was the key reason for the decline in both revenue and adjusted operating result. The Stockmann division performed well in adjusted operating result when excluding the impact of the timing of Crazy Days.

And you may remember that Crazy Days is held both in spring and autumn. For the coming autumn, we will not face a timing impact as the campaign will be held fully in quarter 3, which is the same timing as in '23.

In the comparison period, the Crazy Days was partly ongoing in March, while in '24, the campaign was held at the beginning of the second quarter in April. In addition, the reduced store area of the Stockmann Itis department store decreased the revenue.

What was really positive is that Stockmann improved its gross margin to 42.7% due to good inventory management. The inventories remained at the comparison period level despite the fact that the Crazy Days campaign started at the beginning of April, while the year before it started already in March.

So now we can move on to the group figures on next slide. And here, you can see how the division level changes and their impact on the group revenue and adjusted operating results. The left-hand side graph shows the changes in revenue. The division's impact on the group revenue were twofold. Lindex grew by over EUR 4 million and Stockmann decreased by almost EUR 10 million, as the key reason behind as said, is a decline in and due to the Crazy Days timing. And it's good to note that the underlying revenue for the group developed positively.

Adjusted operating result declined in both divisions, but there were clear identified reasons as we just went through.

So then let's look at the group key figures in the next slide. In this slide, we can see that the revenue was almost at the comparison period's level while the adjusted operating result declined. The currency rates didn't have any material impact on the group's adjusted operating result for this quarter.

Operating results totaled to minus EUR 7.6 million and net result declined to minus EUR 15.4 million, and that was mainly due to the positive impact of a tax decision for Stockmann Sverige AB in the comparison period.

The group's gross margin was on par with the comparison period of EUR 56.3 million, and earnings per share declined to EUR 0.10, mainly explained by the lower net result.

In the next slide, here, we show the profitability of the divisions as a rolling 12 months result. Here, it's evident that Lindex's profitability has improved significantly. Comparing to prepandemic, it has more than doubled and looking even further back to 2017, the profitability has improved with more than 4x.

In this slide, it's also important to note that the currency has had a negative impact on Lindex reporting figures during the latest years due to the weak SEK and NOK.

Stockmann has also improved greatly compared to 2020 and 2021, although it still reports negative numbers. It's worth mentioning here that the timing of the Crazy Days event has influenced these figures, especially for quarter 3 '23 and quarter 1 '24.

Then we can turn to the next page, please. Lindex Group's operating free cash flow was minus EUR 39.2 million in the first quarter. And the group's business is affected by normal seasonal fluctuations during the year and the cash flow in the first quarter is typically low due to higher net working capital compared to the beginning of the year.

The group's capital expenditure totaled EUR 6.8 million, and it was mainly used for digitalization projects and omnichannel development in both divisions. The comparison period included higher investment payment for the Lindex omnichannel distribution center.

The Lindex division is driving digitization in its store network with digital store program, which includes implementing new mobile point-of-sale system and integrating RFID technology to improve process efficiency and elevate the customer experience. The Stockmann division also continued RFID implementation to enhance efficiency and stock accuracy.

Cash in the end of the first quarter totaled EUR 83.7 million and inventories EUR 179.7 million. Inventories remained at a balanced level and declined slightly from the comparison period.

Then let's take a closer look at the cash position. Here, you can see changes in the cash position per item from the beginning of the quarter to the end of the quarter. Cash totaled EUR 137.5 million at the beginning of the quarter and EUR 83.7 million at the end of March.

Adjusted EBITDA increased cash by EUR 19 million while higher net working capital and lease payments had a negative effect. During the quarter, the Lindex division's new omnichannel distribution center proceeded as planned. The investment amounts to approximately EUR 110 million in total and that will be between '22 and '25.

By the first quarter '24, EUR 83 million of the total investment sum has been used for this project.

If we turn to next page, Here, it's illustrated how Lindex Group's financial position has improved during the latest year, which has and will enable future growth.

In the graph here, you can see that the net debt has remained on a good level. Excluding the IFRS 16 items, the interest-bearing net debt was positive at EUR 10.6 million. Equity ratio improved further and reached 60.5%, excluding IFRS items and 28.2%, including IFRS items.

The lease liabilities under the IFRS 16 reporting standard totaled EUR 603.2 million. In the Lindex division, the lease liability declined by some EUR 8 million but increased in the Stockmann division by some EUR 37 million due to prolonged lease agreements for some department stores. Interest-bearing liabilities stood at EUR 73.1 million and consists of the bond.

As a summary in next slide, here, I would like to highlight 3 topics in our financial performance. Firstly, the group's improved equity ratio means that we have even stronger financial foundation. This enables strategic investments to future growth.

Secondly, Lindex's continued revenue growth above the market development is a good sign that we have been able to listen to customers' needs. Our collections have been successful and customers have found our products in the right channels.

Thirdly, Stockmann improved the gross margin and continued successful cost-saving measures. This is a proof of Stockmann's determined and systematic approach to regain profitability.

And before handing over back to Susanne, I would like to use this opportunity to address the other stock exchange release that we have published this morning. I am leaving Lindex Group to continue with new career opportunities outside the company. These nearly 6 years with Lindex and later also as group CFO has been truly rewarding. I will continue to work at Lindex Group until early autumn before new challenges.

And thank you all for good cooperation so far and we'll continue still for a few months. So now I'd like to hand over to you, Susanne.

[Susanne Ehnbage, executive]

Thank you, Annelie. And as Annelie said, we will continue working together until early autumn. And let's look at our way forward starting with Lindex on the next slide.

And in line with our strategy, we have big ambitions going forward on our journey as a global brand-driven and sustainable fashion company. We have built a strong foundation and where we are now focusing on accelerating growth further while continuing our transformation into a more sustainable business and to improve the scalability and efficiency of our business.

Looking into the next page and our way forward. 2024 is a year with many important launches to continue our successful growth journey. Taking our new omnichannel distribution center into operation is an big milestone and a crucial step towards achieving our growth and profitability goals. And the establishment is in progress, progressing according to plan.

Our goal is that we, during Q3, we'll start testing our new facility with both physical products and our system. And our plans start then is to use this in operation is during Q4. We will proceed to building a strong foundation for efficiency, flexibility and innovation, future-proof our stores and continue implementing our digital store program with the new POS, mobile first and refilled by RFID in all stores and other important -- or other important milestones.

We are also focusing on digitalizing our supply chain and to continue enhancing our efficiency, flexibility and reduce lead times where through the design and supplier collaborations are central.

To accelerating our growth, we will continue to expand through our e-commerce and external marketplaces by onboarding and launching and develop further with the new partners, to grow in both our current markets and in new ones as well as continuing to grow in our existing channels and by exploring new ways of doing business.

Those are important part of our strategy and our way forward. Just like our sustainability transformation with exploring new circular business models and business opportunities.

Looking then at the next page and Stockmann division's strategy, our key target is to ensure profitability and future growth. While building the base with operational efficiency, we are elevating the offering, growing and leveraging a loyal customer base and ensuring seamless omnichannel experience. All this will contribute to both profitability and growth.

Next page, please. In Stockmann, we implement our strategy and focus on customer-centric measures to improve profitability. We strive to continue a good growth track when it comes to increasing the number of active loyal customers.

We could see good progress during Q1 that the number of active loyal customers increased compared to previous year. We are actively also developing the loyalty program by enhancing personalization in the marketing communication.

Stockmann's omnichannel offering is unique since its wide with interesting brands and a clear focus on premium and luxury. And we will launch new premium and luxury brands during the year.

In addition to our existing portfolio, explore new revenue streams. A good example is Stockmann Pro, which we launched in December. It's a modern online platform for personalized corporate gifts to business-to-business customers. And Stockmann Pro is a promising pilot and generates a new kind of sales, and we will see good growth potential for it going forward.

And as we saw earlier in the presentation, Stockmann has been able to improve its operational efficiency. And this will, of course, be a focus area for us also in the future, where we will develop our organization as well as invest in omnichannel capabilities and digitalization, while keeping an eye on a good cost control.

We can now move on to the next slide, please. And we are happy to take your questions, and we will answer them now.

[Unknown Executive]

Okay. First question regarding our Q1 results regarding Lindex. So some of your competitors have reported improved gross margins due to decreasing costs stemming from external factors such as supply chain and product costs. Why hasn't this been the case with Lindex, Shouldn't the situation in the Red Sea have an impact on the entire sector?

[Annelie Forsberg, executive]

Yes. And I think I can answer that. Yes, in the first quarter, the freight cost tripled compared to the previous year due to unexpected logistic challenges in the Red Sea. And the Lindex division's gross margin was also affected by negative currency impact.

Otherwise, the intake margin was on the same level as previous year. In addition, we see that costs in most of the areas are still increasing, but the level of the increase is lower than 1 year ago.

[Unknown Executive]

Thank you, Annelie Then we have 2 questions regarding the restructuring program. Please elaborate on the Nordika case. What was outcome like for Lindex Group? Let's go to Susanne.

[Susanne Ehnbage, executive]

Yes. Thank you. We cannot give any further details about the settlement agreement. We are content that we have reached an agreement and that we can move on in the restructuring process. As I said, there is now only then 1 disputed claim left.

[Unknown Executive]

Thank you, Susanne. And then there is another one regarding the LähiTapiola case. So you have made the provision matching the outstanding dispute claim with LähiTapiola to current provisions. Does this mean that you are expecting to solve this provision within this year and to exit the restructuring program by the end of the year?

[Susanne Ehnbage, executive]

Yes. We have made a provision of EUR 15.9 million for disputed claims, which we can see in the Q1 and we are striving to end the restructuring program as soon as possible. But we have also said before, but there is no definite timetable that I can give you at this point.

[Unknown Executive]

Thank you, Susanne. Then we have 1 question related to this distribution center and dividends. Are you planning to pay additional dividend of the expected sale and leaseback of the new distribution center of the Lindex division?

[Susanne Ehnbage, executive]

First, we have not made any such decisions related to Lindex's new omnichannel distribution center. And also, we need to be aware of that according to the restructuring program, the Lindex Group may not distribute the company's assets to shareholders, meaning dividends are not paid during the restructuring program.

[Unknown Executive]

Thank you. Then we have a comment regarding the stock exchange release that was published before our Q1 report. Where can we find as excellent new CFO for the company as the current one? And there are also thanks to Annelie Forsberg.

So the question is that do you, Susanne, think that we can find as excellent CFO in the house? Or do we search such a role externally?

[Susanne Ehnbage, executive]

Well, first, I agree. And thank you, Annelie, for your valuable work in the Lindex division as well as in the Lindex Group. We have started the recruitment process, and we are, of course, looking for the best possible candidate and I'm confident that we will find a strong CFO with an international background that would support our journey and to become an even more global company in the future. But I cannot give you more details on that right now. I will come back.

[Unknown Executive]

Yes. And wait a minute, we have just got 1 additional question. Regarding LähiTapiola case, would it be possible to shift provisions, EUR 50 million to current -- sorry, current account and settle restructuring process? The question was a little bit unclear here. Will it be possible to shift provisions?

[Susanne Ehnbage, executive]

I'm not so sure that I'm understanding the question, but Annelie, is that something you would like to answer?

[Annelie Forsberg, executive]

I think perhaps the question could be [ provision ] or something like that, but we can't really speculate on how we could do this. So no answer regarding that. .

[Unknown Executive]

Okay. At the moment, we do not have any pending questions. So do we have in the audience, anyone else who would like to pose a question now to Susanne or Annelie? Would it be possible to shift provision account outside of Stockmann reach maintained by external party?

[Annelie Forsberg, executive]

Yes. And that would mean some kind of deposition in that way. And like I said, we cannot really speculate regarding that. .

[Unknown Executive]

Yes. Thank you. Now we have got additional questions regarding the freight costs. The container freight rate increased due to the Red Sea conflict have abated against again in the recent months? Have you seen any easing effects yet?

[Susanne Ehnbage, executive]

Maybe I can take that one. And then we can see that, as Annelie said, it has tripled during the beginning of the first quarter. It went up with 3x as it was previous year. But we could already see now in March that it has -- it's better, still higher, but we're now talking more like 60% to 70% higher than previous year compared to then tripled. So it's moving in the right direction.

[Unknown Executive]

Thank you. And no pending questions at the moment. Is there still someone who would like to post in the chat?

There doesn't seem to be any additional questions coming. Thank you.

[Annelie Forsberg, executive]

Thank you.

[Susanne Ehnbage, executive]

Thank you. But then thank you for the good questions that we got. And please be in touch with our Investor Relations by e-mail if something comes up later. And the next time we will meet again is the 19th of July. So thank you for listening, and have a nice day. Bye-bye.

[Annelie Forsberg, executive]

Thank you.