Kid ASA

OSE:KID

Earnings Call Transcript

[Operator]

Good morning, and welcome to the Q4 webcast of Kid. [Operator Instructions]. And with that, I will leave the word over to CEO, Anders Fjeld; and CFO, Mads Kigen. Anders?

[Anders Fjeld, executive]

Thank you very much. Thank you very much, and good morning to all of you out there. So let's kick off this presentation with a financial summary of the quarter. We are pleased to report a robust fourth quarter for the Kid Group. We have achieved double-digit growth and revenues of NOK 1.4 billion with Hemtex notably growth of 17%. Our group revenue increased by 11.7%, while as the like-for-like revenue increased by 10.1% and the online grew 13.7%.

And this comes on top of a record strong Q4 last year. Gross margin decreased by 2.2% compared to previous year, primarily due to Kid Interior, while Hemtex had a positive impact. The EBITDA increased by NOK 44.6 million to NOK 464.5 million and the EPS ended up at NOK 7.11 per share, a record high cash flow from operation and positively impacted by the loan repayment following the sale of the warehouse in Sweden. The Board proposed a half year dividend of NOK 5 per share payable in May.

So categories introduced since 2022 accounted for NOK 55.1 million compared to NOK 33.9 million in this quarter. New categories are important to customer traffic drivers and enhancing sales of already existing assortments as well. And incremental campaign in week 47 to our customer club members was one of several activities that contributed to strong growth across all channels and segments. We are very satisfied with the execution of the Christmas shopping season, a good assortment, greater availability of goods and inspiring stores have contributed to a strong growth -- in recent year, the expansion of stores to our new format of 600 square meters as well as our extended concept have helped to lift sales of the seasonal goods.

As a consequence of the sales development in the Norwegian e-com channel this quarter, the increased volume caused logistical challenges, resulting in slightly longer lead times in week 47 to week 51. We continue to open extended stores and open our eighth and ninth extended stores at Moa in Alesund and Tiller in Trondheim. And also, we continue to work on our loyalty program. And at the end of the year, we passed 3.3 million members compared to 3 million members at the same time last year.

The growth in percentage has been particularly strong in Finland and Estonia, where we have added several member campaigns in this quarter. So a few remarks on the full year of 2024. 2024 was a new record year for Kid. The net profit increased 27% to NOK 398.6 million. We increased the revenue by 10.9% and set a new all-time high record at NOK 3.785 billion. And since 2021, we have achieved a yearly CAGR of 6.9%, as shown on the chart.

The like-for-like growth last year landed at 8.8%, well above our financial targets of 4% to 5% yearly growth. The investment and focus on e-commerce continue to generate revenue in the online channel, while also being the most important traffic drivers to our physical stores. Including Click & Collect, we achieved a revenue of NOK 687.9 million. That's a growth of 15.6% compared to last year. Our online share, including Click & Collect now constitutes 18.2%. And the growth in the online channel comes in addition to strong sales development in our physical stores.

Our leading position online and in-store confirms our strong omnichannel position. A gross margin of 61.9% is up from 61.5% last year and is the third strongest margin in the last 10 years, only surpassed by 2020 and 2021. And in a year where the inflation adjustments have created challenges with rental costs and high wage settlements, we continue to focus on cost control and reduce OpEx to sales from 45.7% to 45.3%.

Strong cost control, combined with continued investments in future growth, delivers the best EBITDA result in the history. The EPS for the year ends at NOK 9.81, also an all-time high record. So let's do a quick summary of the operational of the year. 2024 has been another record year in terms of development and innovation. We -- the category that was launched, since 2022 accounted for a total of NOK 133.8 million compared to NOK 75.6 million last year. The extended assortment was launched online and in selected larger stores in Hemtex in Q1.

And we also launched the made-to-measure technical self-screening in Hemtex in physical stores and on the e-commerce platforms in April. We decided to pilot an e-commerce test in the European markets under the Hemtex brand, one English website and one specific target win with [indiscernible] and also targeting the German market with marketing investments that these sites are to be launched in the last half of this year.

Another year with significant project activity, investing in future growth in our store portfolio across all markets. And the warehouse project in Sweden has progressed as planned with an early access in November last year. And also the sale of the warehouse property in Sweden was completed in December 2024. So with that, I'll leave the floor to you, Mads, for some further comments on revenue, gross margin and so on.

[Mads Kigen, executive]

Thank you, Anders. Good morning, everyone. For the fourth quarter, reported group revenues increased by NOK 150.5 million compared to last year. This represents an increase of 12% in the reported figures. The double-digit growth is attributed to successful assortment and category development, effective marketing, excellent store operations and a highly dedicated team. The key drivers of the revenue development is explained and explained by the number of customers to our physical stores and online in both segments.

In addition, we have positive development in our basket size. The increase is additionally fueled by the incremental campaign for our customer club in week 47 across all markets. And also, we had some increased activities -- campaign activities in Black Week compared to last year in Hemtex in Q4 this year. These activities, a couple out of several activities that contributed to traffic and revenue development across our sales channels and segments. But on the expense of the gross margin, I will come back to.

But all in all, we delivered a strong total revenue growth and a like-for-like growth in this quarter. It was 11.7% on the total revenue growth and 10.1% like-for-like growth on a constant currency basis. Also worth to mention that the online revenue share increased by 0.2 percentage points, and we delivered 13% this quarter on group level.

In terms of categories, we continue to see a positive development across the major categories. And I would like to point out the bathroom and bedlinen categories in addition to the Christmas seasonal products standing out as important drivers this quarter compared to last year. The positive development in the bathroom category continued to what we reported in the third quarter, where we have the historical assortment combined with new products and product groups and the new bathroom display furnishings in our stores displaying the new products. This, all in all, continue to deliver strong results.

Kid Interior had a strong revenue development of 8.8% compared to last year. We are satisfied with the like-for-like growth in combination with the contribution from new stores. New stores accounts for 25% of the growth this quarter compared to last year. Please also bear in mind that the revenue development in Kid Interior comes on top on a high revenue base from last year.

Finally, for Kid Interior, we had 1 additional shopping day this quarter compared to last year. Hemtex performed particularly well this quarter, and I'm very proud to report a total growth of 17%. Measured on a constant currency basis, the growth was 16.2%. The like-for-like growth is driven up by both the development in the online and like-for-like store channel.

I already mentioned the incremental customer club campaign and somewhat increased campaign activities in Black Week, standing out as important drivers on top of the development in general. That said, I'm very pleased to report and present a group revenue growth of 12% this quarter. And also to highlight that the reported revenue growth for Kid Group for the full year was 10.9%. We delivered a gross margin of 61.2% for the group. That was driven up by Hemtex and down by Kid Interior compared to last year.

The gross margin development is mainly a result of changes in the campaign activity plan and will fluctuate from quarter-to-quarter. Our focus is the full year margin and deliver that in line with our financial objectives. As already mentioned, the successful customer club campaign in week 47 and increased activities in Hemtex for the Black Week is 2 examples of important activities, which was highly effective, driving traffic and revenues, but on the expense of the margin.

Better planning of campaigns and logistics has also resulted in improved inventory coverage and available goods for sale, which led to higher volumes sold on campaign this quarter. This affects the margin, but drives revenue growth as presented. During the quarter, we have seen increased COGS comprising a higher share of freight rates and where we in Q4 last year had a positive margin from early price adjustments.

In terms of the freight rates, they continue to decline and stabilize following the unrest seen in the Red Sea late 2023 and throughout 2024. And summarized, like I said, the quarterly -- the margin will fluctuate on a quarterly basis, but we are very proud to present the margin of 61.9%, as Anders said, the top 3 margin going back to the last 10 years. Reported OpEx or operating expenses this quarter increased by 5.1% compared to last year.

The employee benefit expenses increased by NOK 16.2 million, and I would like to highlight a couple of items. First of all, the increase is explained by the general salary increases in large portion. Then I would like to underline that we have a tight cost control in terms of our work hours in the like-for-like stores, but also say that the numbers of work hours is affected by our new stores and high project activities.

These are both initiatives and investments in future growth. The increase seen in logistic employee benefit expenses is mainly due to high activity level and the results delivered in Q4. Increased volumes from successful campaigns caused some logistical challenges, resulting as longer -- slightly longer lead time for online, but also driving some costs. The new warehouse in Sweden is expected to improve this situation.

Finally, it was a limited currency effect of NOK 0.6 million this quarter, which was higher in the third quarter. The reported other operating expenses increased by NOK 3.3 million, and the increase is driven by activity and volumes following the revenue development is among other explained by the use of external workforce hours and operating material in the logistic operation.

Other drivers is the last mile distribution of the online sales and larger furniture that is offset by reduced marketing this quarter compared to previous quarter. In terms of currency, it was limited effect of NOK 0.5 million this quarter. To summarize the development in the fourth quarter of 2024, we have increased revenues in both segments and sales channels, and we have an increase of the NOK 150.5 million. We have a decreased margin as explained, but strong on a full year basis. Then we have the OpEx base as presented and a tight cost control, combined with the costs and investments in future growth, resulting in the record high fourth quarter EBITDA of NOK 464.5 million.

Thought on the cash flow, I would like to say a couple of -- highlight a couple of elements. We have a record strong cash flow from operations impacted by the profit, of course, combined with somewhat effect from the networking capital items. The cash flow from investments this quarter mainly relates to the CapEx of NOK 88 million this quarter. That is investments to our store portfolio in Norway, Sweden, combined with some IT initiatives and also the expansion of the warehouse, the common warehouse in Sweden.

The CapEx was partly offset by the repayment of loan and interest from the joint venture previously owned the warehouse property in Sweden that was sold and completed in December last year. Cash flow from financing is explained by lease payments following IFRS 16 net interest expenses and the repayment of our revolving credit facility and overdraft facility combined with long term loan installment.

And finally, the dividend payout in November of NOK 3 per share. This results in a net change for the quarter of cash in NOK 223.8 million. At the end of the quarter, we had cash and available credit facilities of total NOK 830.5 million -- excluding IFRS 16, the net interest-bearing debt was NOK 263.1 million, resulting in a financial gearing ratio of 0.42 at the end of the quarter, which are well in line with our financial objectives on the 1.25. So all in all, a satisfactory financial position for the Kid Group. Back to Anders.

[Anders Fjeld, executive]

Thank you, Mads. Just a quick remainder if you have any question please type for me in the teams. Yes. So let's have a look on the store portfolio activity in the quarter. Investment in new stores as well as expansion, relocation and refurbishment of already existing stores continue to contribute to strong growth for the group.

During the quarter, we have completed a total of 10 store projects in Kid and Hemtex. And we have also opened 3 more new stores and closed 1. With the opening in Trygg-Hansa in December, that's in Finland, and now the signing of 3 new stores in Finland, we are about to make a comeback in the Finnish market. Our goal is to go from the current 8 stores to a total of 20 stores. At the same time, we have good dialogues about expansion and relocation of some of the existing stores, and we are positive about the opportunities in the Finnish market for the future.

We look forward to open a total of 5 Extended stores this year with the first store opening at Alnabru in Oslo in the beginning of April. Since the last quarterly presentation, it's also clear that we will expand our stores at Stormberg [indiscernible] and also at Jekta in Tromsø. So by the end of the year, we will have a total of 14 extended stores in Norway. We continue to have good discussion with landlords in Sweden and hope to be able to land the first stores in Sweden within short time. As previously communicated, our goal in this first phase is to open 3 extended stores in the Swedish market.

Kid Group currently operates 2 logistical setups, one for the Norwegian market with a warehouse located in Lier in Norway. We also have the headquarters and one for the other markets located in Borås together with our Swedish headquarters. In August last year -- sorry, in August 2023 was, Kid Group decided to expand the Swedish warehouse and closed a Norwegian warehouse to handle higher volumes and streamline our operation. The construction of the new common warehouse has been progressing according to plan, and the common warehouse is expected to be operational during mid of 2025.

The common warehouse previously owned by a joint venture, where Kid Group controls 50% was sold in December last year to a fund managed by Storebrand Asset Management. Kid Group has favorable terms with a 20-year lease agreement, including terminational rights after year 8 and 14. Our new joint warehouse in Borås will have about 40% increased storage space at the same rental cost as we have today.

Together with innovative automation solution, we will significantly increase both storage and dynamic capacity. This enables revenue growth in the future without any need for increased warehouse rents or increased storage space as seen today. The warehouse was taken over on the 31st of January, and we will spend the next few months on installation and start-up of the optimization. We expect the start-up of the joint warehouse, including Norwegian operation in mid this year at the same time as the warehouse operation are discontinued in Lier.

The running in of optimization and new processes will also take place after the start-up of the joint warehouse with a goal of improving capacity for the fourth quarter and the years to come. There will be nonrecurring costs throughout 2025 due to the transition related to subleasing the Lier warehouse, scaling costs in Sweden and moving remaining goods from Norway to Sweden. Estimated nonrecurring costs are approximately NOK 30 million. Process of sublease of the Lier warehouse has not yet been settled.

So -- toward the first half of this year, we have signed 8 -- so far signed 8 new store projects in Kid and 5 in Hemtex, meaning we have extremely many projects in the first half of this year compared to previous years. These projects include a combination of refurbishment, enlargement and relocation.

And as just said, we will commence operation for Hemtex from the new facility in Q1 with a common warehouse expected to serve all markets from mid -- mid-2025. The digital pilot for the European markets under the Hemtex brand is progressing as planned, and we expect to launch during the last half of this year. The Board of Directors has appointed Marianne Fulford, currently Director of Assortment as the new CEO effective from the 1st May, successing me.

So to summarize, as previously said, the Board of Directors will propose to the Annual General Meeting a dividend of NOK 5 promised per share to be paid out on the 27th of May. A proportion of the dividend is attributed to the gain from sale of the warehouse in Sweden and will not be recurring. Including the dividend prepayment of NOK 3 per share in November, the ordinary dividends for 2024 is NOK 8 per share, representing a nominal increase in terms of value and a payout ratio of 82% everyone. We have now completed this quarterly presentation. This also summarized my time as CEO in Kid. As informed on the 1st of November, I have decided to accept the job as CEO of [ Sport Holding ]. I will continue in my role as CEO of Kid until the end of April.

I would like to use this opportunity to thank all investor, analysts and others for the trust and especially thank my fantastic colleagues. When I close the door behind me on the 30th of April, I'll leave behind a fantastic company with a highly motivated management team and close to 3,000 fantastic colleagues across 4 countries. So with that said, Mads, I think we should open up for questions.

[Anders Fjeld, executive]

So a quick reminder, if you have any questions, please type them in, and we will be happy to answer questions that will come up.

Mads, if you can start off by reading that question and then see, if we flip the coin and see if you or me, who's going to answer.

[Mads Kigen, executive]

So we have a question from Hakon Fuglu. Can you please elaborate on the operational effects stemming from the consolidated warehouse in Borås?

[Anders Fjeld, executive]

Well, as said, we will increase the capacity, both in terms of storage and also the dynamic capacity. We are investing and we will update our processes in the warehouse. We're Investing in, I would say, innovative automization solutions combined with new processes. So that will give us better capacity and hopefully, positive impact also going forward on efficiency.

And I think I will not give any or go any deeper than that. But as I said, we've had struggles with the logistics side of a highly successful campaign in the Norwegian e-commerce platform. That's one of the areas, where we hope to improve for the fourth quarter. And also with the 40% increase of only storage or storage area, on the same rental cost is obviously that we have a good potential for growth without adding more additional costs, if we look forward.

[Mads Kigen, executive]

Another one from Hakon. Does the additional costs related to transfer -- to the transfer of warehouse to include rental lease costs as well?

[Anders Fjeld, executive]

Maybe if you should comment on that Mads, what the cost includes?

[Mads Kigen, executive]

So the cost of the NOK 30 million we are reporting or mentioning today, that is related to subleasing the warehouse we have in Lier and is also the transfer.

[Anders Fjeld, executive]

So moving excess goods from the warehouse in Lier to Sweden, for instance, and the startup of the operation. And just to be clear on that, the warehouse in Lier has yet to be finalized on the solution for sublease. So that's not concluded right now, but we have good discussion and hope to finalize that within months to come.

[Mads Kigen, executive]

Another question here. Please elaborate on the development in the inventory. Are there any seasonal or onetime factors contributing? What is the management's view of the right level of inventory going forward?

[Anders Fjeld, executive]

You can start and I might fill in.

[Mads Kigen, executive]

Yes. So the development in terms of inventory this quarter compared to last year follows what we also saw by the end of Q3, where we increased compared to last year. That is -- bear in mind that the Q4 inventory this year or 2024 compared to last year is not giving the right or correct picture. Since last year, we reported our all-time low inventory level, mainly due to the successful Hemtex 50 years campaign. So this quarter, we have an increase of approximately NOK 200 million. And we will -- and as we said in the Q3, we also had the thing increase in the warehouse or inventory level compared to the previous year.

Going forward, you will see, I don't know, how to say, we will see an increased inventory level, but we have some drivers explaining the inventory that we have increased our store portfolio in terms of square meters, driving inventory. We have new categories as the extended category launched in Hemtex and the 3 markets during Q1 last -- or in Q1 '24.

And we also do have settled earlier orders to have inventory coverage and to enable the -- yes, how to say, the fuel of future sales and revenue, I would say.

[Anders Fjeld, executive]

So to just sum it up, we are very happy with the quality of the inventory. There are no issues with seasonal goods too much and so on. It's on a normalized level. We always try to balance between having the right level of inventory for, how to say, financial purpose, but also having -- this year, we chose to have a bit more inventory level to fuel the revenue in the quarter. So one of the reasons why we have a good quarter in terms of revenue development is that we have more goods available for the campaigns.

So we are comfortable with the inventory level going forward.

[Mads Kigen, executive]

More questions. How much -- also from Hakon, -- how much of the new categories -- category sales stems from furniture?

[Anders Fjeld, executive]

Well, Hakon, we will probably consider giving updates on that on a later stage, but we are very happy with the sales of furnitures and new categories. We see that some -- within the larger furniture categories, we see that some of the furniture categories exceed our expectation, but some are slightly slower. But I must emphasize that we are happy with larger furniture. And within the extended concept, we see also very good development within other new categories on top of the good furniture development.

Normally, we say it takes 3 years to see the potential. So we are curious with the level for 2025. And bear in mind that larger furnitures was introduced in Hemtex in April, and we still are to open Extended stores. So I think it's possible to be optimistic for the development in Hemtex as well. But that said, we also are impressed by the revenue from larger furnitures in Hemtex. And as I said during the presentation, larger stores with a format of 600 square meters and the Extended store drive more sales of seasonal product, which was 1 of 3 key drivers with Extended, adding new categories, expand existing categories and more inspiration. That was a long answer for a short question.

[Mads Kigen, executive]

Hope you are happy, Hakon for that. And the final question from [ Ole ]. Could you please elaborate on the hedging strategies or contractual measures in place to reduce the effects of currency risk?

I guess I can answer that. We have a currency hedge strategy where we are hedging the USD and euro going forward 9 to 11 months. So this is what we do, and that is also into our calculation models to ensure that we deliver in line with the financial objectives in terms of gross margin. So we have hedged there.

So meaning that at the time we negotiate with the suppliers, the factories, we know the hedging levels. So with the hedging strategy, we have reduced or almost eliminated the FX risk. So we know what we'll pay for the U.S. dollar or the euro, and we negotiate with the factory. And after that, we will see the retail price. And if we consider that to be a commercial price point for the product, we will buy it. If not, we will not buy it.

So I think that sums up the Q&A session and the fourth quarter presentation for -- to now. So again, thank you very much to all of you out there. Hope to see you again, and have a nice day.

[Anders Fjeld, executive]

Thank you.