Kid ASA
OSE:KID
Earnings Call Analysis
Q4-2023 Analysis
Kid ASA
Kid ASA closed the fourth quarter on a high note, achieving an all-time peak in revenue and EBITDA. Sales climbed by a robust 13%, fueled not only by brick-and-mortar stores but also a remarkable 26.6% surge in online revenue that propelled EBITDA to NOK 419.9 million. This surge in digital sales didn't come at the expense of quality, as evidenced by a gross margin increase of 6.5 percentage points, culminating in earnings per share (EPS) reaching NOK 5.74.
The narrative of Kid ASA's quarter is one of resilience and dominance in a tough market. The company's value proposition remained compelling and resulted in a decisive double-digit uptick for the like-for-like stores.
Considering the full year, Kid ASA overcame market headwinds to post a 7.4% growth, setting a group turnover record at NOK 3.4 billion. E-commerce was a particular highlight with records shattered there too - NOK 416.1 million in direct sales, and NOK 595.3 million when including click-and-collect. The company embraced omnichannel retailing with gusto, as these efforts accreted to over a sixth of their total revenue. They also maintained a grip on costs, keeping the operating expenses to sales ratio at a moderate 45.7%, despite inflationary pressures, which contributed to a near-historic EBITDA of NOK 545 million.
2023 marked a year of strategic expansion for Kid ASA, embracing innovation and sowing the seeds for future growth. They ventured into new verticals such as furniture, carpets, and lamps, thereby expanding the market they serve. Their 'made-to-measure' model introduced in the second quarter, which includes technical sunscreens for retail, saw its turnover double from the previous year to NOK 60 million. Moreover, celebrating 50 years of Hemtex with a fruitful campaign encapsulated a year of brand enrichment and customer engagement.
Mads Kigen, Kid ASA's executive, reflected on a strong fourth quarter with a 13% reported revenue growth. On a like-for-like basis, there was a 9.3% upswing accounted for by both their physical and online entities. The total group revenue increase for the year clocked in at 7.4%. Margins too testified to the company's operational efficiency—63.4% in Q4, driven largely by pricing adjustments and lower freight costs which point to a skilled navigation of the supply chain amidst a challenging landscape. What's more, these margins held up well even as marketing activities intensified, particularly during anniversary celebrations and promotional weeks, indicating sound fiscal management.
You don't have any saved screeners yet
Good morning, everybody, and welcome to this fourth quarter presentation for Kid ASA. At the end, we will have a Q&A session. For those of you present at the webcast, please type in the question and we will start with questions from the audience when we go into the Q&A session. Okay. So let's kick off with the financial summary, the highlights of the quarter, which we will deep dive into throughout the presentation.
We had an all-time high revenue and EBITDA in the quarter. The sales increased by 13%, and the like-for-like sales increased by 10.2% -- sorry, 9.3%. The online revenue increased with 26.6% and the gross margin increased by 6.5 percentage points. This led to an EBITDA increase of NOK 123.1 million to NOK 419-point million (sic) [ NOK 419.9 million ] and the EPS ended at NOK 5.74 in the quarter.
So let's go a bit deeper into what happened during the quarter and the year. We are proud to present another strong quarter with double-digit growth. Our value for money concept remain resilient under the current demanding market conditions. And we see a strong momentum for our like-for-like stores.
Growth in the quarter was further accelerated by our omnichannel and category development initiatives. Revenues from the extended assortment amounted to NOK 14.6 million in the quarter. Our loyalty program continues to grow. We now have more than 3 million customers in our customer club across all markets. By the end of '23, we were able to reach more than 0.5 million customers via e-mail -- more than 0.5 million customers compared to last year.
Throughout the year, we have developed our customer club, and we are at the starting point to utilize the insights in our marketing work. The initiatives we have seen in customer club has also been a good contributor to the results in the quarter.
In December, we also launched our first live shopping event. With live shopping, we utilize a new growing channel that both build brand and contribute to increased sales. In the quarter, Hemtex successfully completed an exit from SAP, signifying a year with noteworthy events that includes implementation of a common point-of-sale, POS, or [Foreign Language] as we say in Norway, system and a common ERP system across the group.
This ensures a modern and effective IT infrastructure. And going forward, we will continue to invest and develop our IT systems to support future growth. Our warehouse project in Sweden is following the schedule. The groundwork is now underway on the site in Viared, Sweden.
So let's have a look at the full year financial highlights. We had a strong revenue despite a challenging market with a total growth of 7.4%. The turnover of NOK 3.4 billion is an all-time high for the group. In addition, we set new sales record for Hemtex since the acquisition and for the first time, we crossed the NOK 2 billion mark in Norway.
The turnover from our e-commerce business was NOK 416.1 million, and that's also a new record. And if we include the click-and-collect sales, the total turnover generated through our e-commerce platform was NOK 593.3 million (sic) [ NOK 595.3 million ] in 2023. And this represents a share of 17.4%. The growth in e-comm, along with growth in store -- in our store the turnover testifies a robust omnichannel model.
After last year, where the margin was negatively affected by high freight prices, we realized a gross margin of 61.5%, which is high in the range of historical gross margin. In a year where inflation has put pressure on cost development, we are satisfied with OpEx to sales at 45.7%, marginally above our long-term target of 45%.
EBITDA, excluded for IFRS 16 effects, of NOK 545 million is our second highest result in history. We have increased EBITDA by NOK 118.7 million compared to last year. And I will get back to dividend on the last page.
So 2023 has been another year where the innovation, business development, investments in store and other IT system and so on, contributes to -- and continuous work with process improvements has yielded solid results. Strong category development, both through extended but also other category development has been an important growth initiative.
We have expanded the available market to also include furniture, carpet, lamps and more, which mean that Kid and Hemtex now operates in a significantly larger market than before. The made-to-measure model was launched in Q2 '23, enabling physical stores to sell technical sun screening products, and this contributed to a strong growth.
The turnover of made-to-measure was doubled compared to last year and with a strong growth in our physical stores in the last month of '23. The total turnover made-to-measure in '23 was about NOK 60 million at double -- as previously said, we doubled the turnover from last year.
There's also been a significantly project activity in our store portfolio across all markets. Hemtex proudly celebrated their 50th anniversary with a successful campaign, marketing a significant milestone in our journey.
So with that, I will leave the stage for you, Mads.
Thank you, Anders. So group revenues for the fourth quarter of 2023 increased by NOK 144.6 million in reported numbers compared to last year. This represents an increase of 13%. On a constant currency basis, the total growth was still 10.2%, and the like-for-like growth was 9.3%. This is driven by both our physical stores and online platform.
We also see a growth in all months for the quarter. This substantial growth is driven among others by increased basket size, the continuing work with the category development in combination with the strong development we see online.
So regarding the online revenues, I'm proud to point out that we had a quarter with a strong growth of 26.6%. And bear in mind that this performance comes on top of a high online revenue base from last year where we had 18% growth.
I'm also very glad to say that we have a strong -- a solid growth in our stores in addition to the online development. The group online share in the quarter was 12.8%, up by 1.8 percentage points from last year, driven up by both Kid Interior and Hemtex.
For kid Interior, reported revenues were up by 9.3%, and the like-for-like growth was 8.5% compared to previous year. The like-for-like growth includes the online revenue growth of 28.4%. And excluding the online revenues, the like-for-like growth from our stores was 6.4%. New categories and initiatives continue to fuel the growth, where the extended assortment had a positive impact on the revenues by NOK 14.6 million.
For Hemtex, we experienced a strong reported growth of 19.6%. On a constant currency basis, the total growth was 11.9%. And the like-for-like growth was a key driver with a growth of 10.7% compared to last year. This like-for-like growth includes both our physical stores, like-for-like and the online growth of 24.8%. Excluding the online revenues, we had a like-for-like growth to our stores of 8.2%.
I would give a couple of comments to the revenue development and the strong performance in Hemtex, where we see that we have this Hemtex 50 years anniversary driving traffic and giving results. We had a campaign in October. We have also somewhat higher marketing activities related to the Black Week and Cyber Week compared to last year. This is something I will come back to on the slide I have on gross margin shortly.
I can also add that in Hemtex, the like-for-like growth to stores and online was positive in all markets for physical and our digital channel, except the like-for-like stores in Estonia. In terms of revenues from Hemtex [Foreign Language], I would just say and comment that it was fairly stable compared to previous year.
That said, I'm very pleased to say that we -- or present that we have a total revenue growth of 7.4% given the start, as you can see on the chart in the very bottom, where we had that rough or tough start of the first half of 2023. In constant currency, the group revenue development was 5.5%.
In terms of gross margin, the increased -- the gross margin increased by 6.5 percentage points to 63.4% for the group. This development is driven by both segments from Kid Interior and Hemtex. This gross margin level is a strong historical -- in a historical perspective, and the improvement to the gross margin is attributed to the full -- the price adjustments with fully effect implemented during Q1 '23, which we have done to meet the higher currency hedges levels going forward, combined with an inventory comprising lower freight costs.
In addition, I would also like to highlight following items related to the margin. We have a strong sales and revenue development in the quarter, which has reduced the need for seasonal sale positive impact to our margin. I'm also happy to say that regardless of the strong extended development, we maintain a robust margin for the group this quarter.
And also, on the other side, we had somewhat increased marketing activities in Hemtex driving growth, which will impact the gross margin with reference to the previous slide of revenues. With that said, I am very happy to present the full year 2023 gross margin of 61.5%, which is in line with the historical levels and our previous communication. Let's get to the operating expenses, and the OpEx to sales ratio, excluding the IFRS 16 effects, was stable and unchanged of 36.7%. The OpEx increased 12.2% in the quarter. But when excluding the bonus expenses in the quarter, the increase was 6.9%.
In terms of employee benefit expenses, the increase was NOK 43.6 million and is mainly due to bonus expenses accrued in the quarter of NOK 18.2 million as a result of the profitable and performance delivered this period.
In addition, we see that -- I explained also in previous presentations, but we have in 2023, a line -- a change of line item from logistics since we have taken the logistic operations for Hemtex, the Swedish, Estonian and Finnish market in-house. So we have a line shift from other operating expenses to employee benefit expenses. That is -- that effect is approximately NOK 8 million in the quarter.
In addition, I will also highlight that we had a currency effect of NOK 4.2 million in the period. And all these items, increasing our employee benefit expenses was partly offset by our cost control through stable working hours in our store across markets.
The other operating expenses was reduced by NOK 2.7 million, mainly due to the fact that I explained, where we see a shift from other operating expenses to employee benefit expenses related to the logistic operation in Sweden in-house. The decrease is partly offset by increased marketing investments in addition to a significant currency effect of NOK 5 million in the period.
So to summarize the development in the fourth quarter, we have increased revenues by double-digit growth, a robust gross margin development and the OpEx base as explained. This resulting in an all-time high EBITDA of NOK 420 million, which is an increase of NOK 123 million compared to previous year.
So the cash flow, I would give some comments this quarter, and this shows the change during the quarter. The cash flow from operations was a record high in the fourth quarter, mainly due to the strong profit for the period and historical low net working capital.
The cash flow from investments mainly relates to capital expenditures to our store portfolio. That is new openings and what we call store projects. The cash flow from financing is specified a bit more, and we see that we have a dividend payout in November of NOK 112 million. We had lease payments following the IFRS 16 and a net change in debt of NOK 226 million. And finally, the net interest expenses of NOK 20 million.
The change -- this resulted in a change in cash of NOK 228 million, excluding the currency translation, and at the end of the quarter, we had cash and cash -- available credit facilities of a total of NOK 827.1 million and a net interest-bearing debt of NOK 296.6 million. This results in a financial gearing ratio of 0.54 compared to 1.12 last year. All in all, a robust financial position for the Kid Group.
So store portfolio, Anders?
Yes. Thank you, Mads. The fourth quarter was yet another quarter with many store projects. In Hemtex, we did 4 projects, of which is opening in Sickla in November marked a new standard. The store size was 825 square meters, being able to display furniture for the first time. And the revenue in this store and other store opened in Hemtex in the quarter has been very positive since opening.
We have now signed 3 contracts for new extended stores in Norway, and we see several exciting opportunities, both for extended and other store projects across all markets. So we expect to sign more contracts within the next months.
So we remain optimistic of our market position and growth initiatives going forward. However, we expect continued high cost inflation in 2024. Due to unusually high inflation experienced across all markets during '23, rent index regulation for '24 will be in the range of 5% to 7%, with other operating expenses being adjusted in accordance with inflation.
In the first half of '24, we have so far signed 9 store projects in Kid and 4 in Hemtex. These projects include a combination of refurbishment, enlargement and/or relocations. Among the store projects, there are several expansions and relocation at the largest shopping centers, both in Norway and Sweden.
Many of these stores will be well above 600 square meters, though not as large as the extended stores. This will enable us to display a larger portion of our extended range in addition to more space for inspiration from our already existing range of products, which is an important growth driver as well.
We will launch the extended assortment online and in selected larger stores in Hemtex during Q1. Actually, you can now buy it in all our e-commerce business across all markets. But we haven't started the marketing yet. We will do that within a couple of weeks.
Made-to-measure, as mentioned earlier, the made-to-measure technical sun screening module will be introduced in Hemtex, both in physical stores and online during the second quarter. We will continue to strengthen our marketing position in a challenging macro environment, but we are positive looking ahead of 2024.
Last but not least, the Board of Directors will propose at the Annual General Meeting a dividend of NOK 3.50 per share to be paid at the end of May this year. Including the dividend prepayment of NOK 2.75 in November, the ordinary dividend for '23 is NOK 6.25, representing a nominal increase in terms of value and a payout ratio of 81%.
So with that, we finish this presentation and we open up for questions. First, from the audience present here in Oslo. So for those of you listening to the webcast, please type in the questions.
Are there any questions from the audience? Yes. We'll give you a mic.
Congratulations on great results for the group. I have one question regarding online sales. Can you comment on the gross margin for that segment?
Well, we do not share our report on gross margin in e-commerce. But I can say that there are no large differences between gross margin in physical stores and in e-commerce channel.
Thank you. And also regarding freight costs for first half of '24. Can you comment on how much of the freights you have on a fixed deal and how will extra-selling distance affect costs?
We buy all our overseas freight in the spot market. We have seen an increase in spot rates, but we now see a decrease again. We will do necessary actions to deliver on our financial objectives when it comes to gross margin. And when it comes to lead times, we see some delays, but not more than 14 days as we see now, that we do not expect that to impact negatively going forward.
And last, do you see any change in consumer behavior in Sweden?
I would not say that we see any change in consumer behavior, but we have ramped up the marketing activities in Q3 and Q4, which obviously have been positive and an important contributor to our revenue growth. But in general, I would not say that we see any changes in the market all over.
Are there any more questions from the audience?
Okay. I think we then will go into the questions from those listening in through the webcast. Okay. This -- we'll try to both read the question out and answer at the same time. I'll start. The first from -- is from [ Francisco Wilches ].
First of all, congratulations on the results. Considering the growth the group has experienced in the last 5 years in online segment, how does the group expect this segment to evolve in the next 5 years? Does the group see a certain competitive advantage in this segment due to logistical complexity of the countries in which it operates?
Well, we don't do any guiding in terms of sales, but we have invested heavily in the e-commerce business, both to drive growth in the e-commerce channel, but also that it's an extremely important growth traffic driver to the physical stores. We have also invested in people, we invested in our e-commerce platform, and we have heavily invested in our logistical setup.
We have a good logistical hub serving the Norwegian market and now an own hub serving for Hemtex. And during 2025, we will move the logistic hub in Norway to Sweden serving all the markets. I believe that we have a strong competitive advantage when it comes to the logistical setup. But most of all, we have products our customer wants, which is an important thing in our business. So we expect good growth going forward in all channels, including our e-commerce channel.
Okay. The next question is from [ Peter Billing ]. Thank you for the presentation. We have 3 questions. Oh, that's good. The first one, can you elaborate on the very strong gross margin for Kid Interior this quarter and on the softer Hemtex margin?
Yes. So to compare these 2 segments, in Hemtex, as we described or we described here is that we saw an increased marketing activity during the quarter, which has impact to the margin of Hemtex. In addition to the marketing and campaigns, in Hemtex, we also have a business we are referring to as Hemtex [Foreign Language] and also franchise business.
That is something that also had impact comparing the margins between Kid Interior and Hemtex. And in addition, we can also say that we have done -- like the price adjustments we did in the first quarter is on, yes, some different level comparing the 2 segments.
Yes. To maintain our strong market position, being slightly more aggressive in the Swedish market, I would say, on some categories.
Yes.
Second question, are you seeing increased footfall in Q4 as seen during Q3? And how does Q1 been -- and how has Q1 been so far?
Yes. So in Q1, we do not guide or say anything.
We'll be happy to give you the revenues in the beginning of April. That's the answer.
Yes. And in terms of footfall, we see a mixed picture where we see some -- I'm not sure how much detail we want to share in terms of footfall.
But we can generally say a nice top-level comment. Let's get back to that. The last question, you guide on lease index regulation of 5% to 7% for '24. But how are your work on maintaining profitability?
Well, we saw even higher index regulation in 2023. We have a high focus, of course, on profitability in terms of driving revenue growth with category expansion, investment in our store base and so on, being able to also have good profitability going forward.
Okay. Let's -- next question is from [ Håkon Nelson ]. Can you give some flair on the Q-on-Q decline in extended sales? Is the seasonal as expected. I'm not sure if I...
It's the quarter-on-quarter revenue where we have a decline in extended revenues in the fourth quarter comparing the Q3.
Yes, I would say the Q3 is an extremely important quarter for furniture sales. So the sales we've had an experience in the fourth quarter is above our internal expectations. So we are very happy with the sale of furniture and the additional categories in the fourth quarter.
Next question comes from [indiscernible]. What is the average payback time for new store opening? And what is the average payback time for an investment in an extended store?
Well, the average payback time for the investments in our stores is somewhat in the area of plus or minus 1.5 years depending on the lease agreement. So we normally invest some NOK 2 million to NOK 2.5 million, but sometimes even lower, depending on the lease agreement and the payback time could be as little as 1 year or up to 1.5 years. So I would say, around 1, 1.5 years in average.
The extended stores are -- if you look at an extended store that is a greenfield opening where there's not been a next store earlier, it's the same payback time. If you see at an extended store that has enlarged and refurbished it's somewhat a bit longer but not much longer. So in general, I would say, in the range of, as a greenfield, meaning a store that's new, it's the same, and slightly longer but not much longer for an expansion over the existing store.
Do you have any more comments to the questions, Mads?
No.
Okay. If there are any more questions for those in the webcast or for those of you present, please shout out now. It seems like we've been pretty clear. So with that, I say thank you to the audience, both for you present at the webcast and those of you here in Oslo. Have a nice day.
Thank you.