Clas Ohlson AB

STO:CLAS B

Earnings Call Transcript

[Kristofer Tonström, executive]

Good morning, and welcome to the Clas Ohlson Q1 report presentation. My name is Kristofer Tonström, and I'm the President and CEO of Clas Ohlson. .

So before moving into Q&A, I'll review a short presentation, starting with a overall business update, then going deeper into the financial development. And then ending off with events after the reporting period and then a short summary and wrap up.

So headline in the first quarter, obviously, a lot of things have happened since we were here last time close in Q4. So we have seen a lot of changes, obviously, in the market and also in terms of consumer behavior. And also now around, it's been a very busy summer with a lot of fast-paced changed -- change.

Looking at the first quarter, the results are below our expectations, and that's really very much driven by a summer bet that didn't pay out as we expected, and I'll come back to that.

So net-net, we're reporting sales of minus 1% to a bit above SEK 2 billion in the first quarter. And an operating profit of SEK 19 million if we exclude the onetime effect of our U.K. operations closure, which had a onetime effect of SEK 35 million in the quarter.

That said, we do have a strong financial position, and we have SEK 260 million net cash and no debt. And we also have a strong position with our consumers. We have more loyal and unique customers than most other retailers out there, and we have a very high price perception.

And the high price perception is going to be one of the things, more important than ever, looking at the consumer confidence development right now and given the economic situation for our markets.

Also, of course, on our end, the flexibility and efficiency will be more important than ever to be able to adapt and to be resilient to anything that comes our way now in the next couple of quarters.

But then starting with looking at a bit more of the details of the first quarter. While online total sales was down 1%, our organic sales was down 3% and obviously, we had planned for at least 5% growth, which is our annual target. So that said, below our expectations.

Online sales grew 6%. And obviously, in the fourth quarter, we saw some decline on online and now it's growing again, which is important given that this is still a key driver of growth for us forward. Our gross margin came down from 39.5% to 35.1%, and I'll go more into depth on that area in a minute.

As a result of this, the EBIT margin decreased to minus 0.8%. And obviously, this includes now the U.K. closure. And as said, net cash at hand and no debt at the moment and thereby a strong position in terms of net debt to EBITDA amounting to minus 0.4.

So looking a little bit more into what happened now this summer. So obviously, as we talked about when we were here closing Q4, then we concluded that we placed a big bet on an early and big spring, and that paid out well.

We placed a similar bet on early and big summer and that didn't play out as expected. So obviously, we have distributed larger volumes to our stores to be very prepared for when the consumers needed products.

And we were focusing on big items like fans, watering, pest control, et cetera, big categories with fairly high value items and also a fairly high share of known brands in that mix.

However, sales started later than expected, and the overall summer came in lower than expected. We also saw a big and fast promotion activity increase within the market. Many retailers were already as of June on 50%, 60%, even 70% off on some of the summer items.

And we took an active decision to follow the market pricing to, one, be competitive and give our customers the same value as elsewhere. #2, to ensure, of course, that we maintain market shares. And then #3, to also clear out the stocks that we have in our -- distributed to our stores.

We've also seen during the summer that the consumer confidence index has continued to drop across the 3 markets. And also, notably, as we also referred to last quarter, we see the biggest drop actually happening in Norway. And that's also where we have seen the most sales softness in this quarter.

Our strategy remains unchanged. We have our Blue Heart strategy with the key focus areas that we're working with deliberately on an ongoing basis. That said, obviously, given the market situation and given where we're at, there is also high focus on cost.

So anything we're going to be very demanding buyer on any type of services, obviously. So with purchasing prices, transportation costs, total rent, et cetera, we're working deliberately with doing anything to get costs down.

Obviously, there are raw materials that are starting to come down, and we expect of course, suppliers to come back down on prices on anything that has gone up in the past. So we're working very deliberately with that.

And then, of course, there's a big responsibility on our end to constantly make ourselves more effective, especially in our value chain, making everything more effective and ensuring that any krona that we spend, the consumer is also willing to actually pay for. So big cost focus moving forward.

Looking then at our 4 identified growth drivers that we're focusing on to drive growth over the next 3 years. The first one is what we call our key consumer missions. And this is obviously our bigger destination categories where we're fulfilling very concrete needs of our main shoppers.

Here, we do see some positive development on a lot of the key categories now this summer. We do see a tendency of need-based shopping to increase. There's less nice to have and consumers are very deliberate in terms of when they spend money, they spend it on things that they really need.

We also see, especially now recently a big demand increase for anything that helps our customers save money. Anything from energy saving to food storage, food boxes to bring to work instead of eating out, et cetera.

So we believe we are well positioned, and I'll come back to the missions in a second when it comes to our assortment forward.

The second growth driver, which is providing availability and convenience and thereby growing both sales channels, stores and online. What we've seen in the first quarter is that actually the traffic to our stores have been actually increasing and fairly on a good level.

Whereas the challenge has been actually making the conversion happen and consumers have been much more careful with actually spending money, but they do come visit us, and we have a high amount of visits on a going basis.

Online, we have seen stronger conversion, and we have actually seen as a lot of other e-tailers, a big traffic drop during summer and despite that higher conversion and thereby a 6% growth on our online in the first quarter.

We've also added one new feeder store, i.e., our distributed e-com warehouses that are combined with the physical stores. So we're just opened now in Northern Norway in Tromsø to also provide our customers with same day to next-day delivery across the 3 markets. And we see that, that is a key growth driver for us online.

On Club Clas and our focus on our core customers, we believe this is going to be more important than ever as we move forward, ensuring that we have a big base of loyal customers that do come back and actually invest with us on the right categories.

So now we have 4.4 million members. And actually, in the quarter, we have seen 20% growth of those -- of that membership base -- or sales within that space.

And then the last growth driver, Finland. We are really kicking off now 20-year celebrations with our customers starting more or less now across Finland. But looking at what we have done during the December, it's been a lot about growing the membership base.

And actually, we have grown that 78% and the sales with our members, 78%. And the key thing in Finland is getting more customers in. The customers that buy with us, they really like us, but we need to grow and drive scale. We have implemented our price guarantee, and we also kicked off our local marketing concept to appeal to our Finnish customers in a new way.

Touching quickly on our consumer missions. These are really the high -- the big destination areas, the reasons you actually visit Clas Ohlson. And we are maintaining focus across these 5 areas that we laid out more in detail during our Capital Markets Day back in June.

But again, as I said, we do see a high tendency from need-based shopping and also helping consumers save money. So we do have a high focus on tidying up your home, lighting up your home, creating a conscious home environment, especially now during this coming seasons.

And as we also have talked about, a key for us is to expand our assortment, and that is a key way to realize our missions. We have 200 million customer visits a year. And we do see that the customers prefer us as long as we offer what they are looking for.

And I think one example right now in tidy your home is a customer might come for a vacuum cleaner, but then they can also buy the everyday cleaning items, everyday cleaning chemicals, et cetera, are even more becoming a destination for more opportunities.

And this also links into a bigger focus on consumables for us here and now and moving into the fall. We do have a big opportunity to increase the baskets with affordable, sustainable consumables that the customers actually do need in their day-to-day no matter economic environment.

Looking then at our customer satisfaction. Our NPS is still at a high level, 55%. The product reviews, 4.6 out of 5 versus target of 4.4. So the peered quality and the perceived quality of our customers -- of our products with our customers remains high.

We've also added here the measure to be -- to show you our price perception with customers. We measure this on a going basis. And what you can see here is the -- in between the scale of 0 equals cheap, 100 expensive. We are at 16%, and we have grouped our low-price competition together.

And as you can see, our customers actually do believe that we have a very strong value proposition. That is going to be key for us moving forward.

Then looking at sustainability. This remains extremely important, and we do see a big synergy between helping our customers save money, but also our customers actually living a more sustainable life.

If you are looking after your food waste, you're going to save money on expensive food, but it's also good for the environment to drive down food waste. So we're integrating these messages a lot moving forward.

We also see continued growth on spare parts. That's what consumers are now looking for. And also in terms of our work with our suppliers, we can still report high levels of 99.1% of our suppliers free from critical findings and related to our code of conduct.

Despite everything happening in China right now with COVID, we've still been able to perform 119 audits during this quarter. And when it comes to the products we develop and sell ourselves, now 24% of our private labels have been assessed and classified in accordance with our product sustainability assessment model.

Going a bit through the financial development. I've already covered sales, so amounting to SEK 2 billion. And looking at the 3 markets, we can see that over the last 4 years, we wanted to compare with pre-pandemic levels. We see Sweden on a fairly stable level.

Finland slight increase now in the last quarter, but of course, we want more. And looking at Norway, Norway actually did have some positive pandemic effects, and we established ourselves at slightly higher levels over the last couple of years.

So we're declining versus last year same quarter. And we are looking extra into Norway right now, giving consumer confidence, et cetera. But looking at pre-pandemic levels, we have still established ourselves at a fairly high level.

Online, same thing here. Pre-pandemic, SEK 113 million. Now we're at SEK 232 million, 6% growth versus same quarter last year, and this remains a very key driver for us to drive total sales.

Then to our gross margin, and this is obviously the biggest factor impacting the negative EBIT in the quarter. So obviously, the overall gross margin dropped from 39.5% to 35%, so I wanted to share a bit more details on that.

So obviously, going into the quarter, we have seen sourcing costs, transportation costs, purchasing price has gone up. Everything we sold during the first quarter, a lot of the things were actually bought at peak cost.

So there is a time lag when we buy things and when they actually move out of the warehouse. We knew that would be a high pressure from a cost point of view and we had taken a lot of preemptive measures during the spring with price increases across a range of products.

But as earlier explained, the decisions we made on cleaning out our stores from summer stock is what had the absolutely biggest negative impact this quarter, of course, combined with other things.

So net-net, that is, of course, why we see the disappointing development on our gross margin. Share selling expenses, not too much to go into detail, but obviously, as a result of slightly lower sales, we see share of selling expenses going up a bit.

And also, of course, we have -- as we have reported during the summer, maintained the high pressure when it comes to store sales and also marketing activities to ensure we are relevant when the customers are out there.

Admin expenses, we are always cost focused, and we see SEK 44 million in this quarter. And as a net result of all of these factors was an operating profit of including the U.K. closure of SEK 16 million and excluding the U.K., SEK 19 million. So obviously below our expectations, but obviously, clearly relate back to the facts that I've just laid out.

Looking at investments for the first quarter, they amounted to SEK 32 million, mostly focused on store refurbishments, some store moves and also IT systems. And then, of course, to the question of our inventory level. So obviously, we went into the quarter with high inventory levels. As we talked about last time, we placed bets on summer.

Now looking at our inventory level, it's around SEK 2.5 billion. If you look back at the first quarter in the last couple of years, it was a bit lower than we wanted. But obviously, we are sitting on a fairly high inventory level.

However, to give a bit more color on to the inventory levels. Absolute majority of the inventory increase both versus last quarter and versus the same quarter last year.

The absolute majority our products that are either in our distribution center or on its way to the distribution center. And in terms of product mix, it's very focused on autumn products, winter products, Christmas products and base.

The active choice we took to sell out summer stock from stores have played out well in terms of store stock. It did cost us on the gross margin. But looking at the levels in our DC, the remaining summer stock that is still there, we believe we will be able to sell now next summer.

So the absolute majority of the inventory growth is related to products that we believe are sellable in the coming 2 quarters.

Then looking at our cash flow. And obviously, our operational cash flow is minus SEK 35 million. And the biggest driver of the cash flow, apart from the result is obviously the stock build up. So there's a clear correlation there.

And as I said before, we have SEK 260 million in the bank right now, no debt. But we do have approved credit facilities of SEK 650 million.

And on Friday, we have our AGM. And as announced in Q4, the Board is proposing a dividend for the year that we just closed, which is a slight increase to SEK 6.75 from last year's SEK 6.25.

The Board is also proposing an extra dividend of SEK 6.25 to compensate for the year '19/'20 when we didn't do a dividend based -- driven by the pandemic.

So obviously, this is in line with our dividend policy, and it relates back to the year that we closed on the last of April, which was a record year for Clas Ohlson.

Then looking at the very important macro trends now moving forward. So on the top here, we have the prices for containers from Asia to Gothenburg. So as I said before, a lot of the things we bought now during the summer were bought at the peak of this graph.

So of course, the good news is that the graph has started to come down a bit. Obviously, high levels more than $11,000 for container versus what we used to be -- used to around $2,000. So obviously, establishing itself on higher levels, but coming down from the peak.

There's been a lot of movement, obviously, in exchange rates lately. And looking at the NOK/SEK, that is a very important part for us sales-wise given the big business that we have in Norway, and there has been fluctuations here. But the most important thing to have a look at moving forward is obviously the impact of the dollar.

So similarly to us, I talked about transportation cost, of course, there's a time lag. We buy something and then there's a certain amount of time before we actually sell it and it's activated as visible in our gross margin.

So looking at the dollar development, a lot of the things we're now selling were bought at a slightly cheaper dollar. Now the dollar is up 20% since last year same time. So of course, we expect a dollar impact on the quarters to come.

And our job is, of course, to do everything to offset that, find ways to drive mix, total sales, et cetera. But that is obviously something that has changed fairly dramatically just recently driven by the macroeconomic development.

Then before summarizing and closing off, also reporting then the August numbers. We see that total sales in August is -- August is up 7% to NOK 758 million and organic sales amounted to 2% up. And obviously, August is a transition month.

A little bit in the beginning of August, we sold out the remaining part of summer, but we have seen a fairly fast shift now into autumn and into the need-based categories that I referred to earlier. Obviously, one month is too short to draw big conclusions on.

But of course, it's encouraging to see organic growth again in Norway. And of course, the ambition is to maintain and drive that further. A bit of a disappointment in Finland of minus 3%. But as I said, we're now for real kicking off the growth plan, starting with our 20-year celebration of this fall.

Also looking at our online sales. Here we see 42% growth, amounting now to SEK 83 million. And again, similar things in terms of mix and product composition as for the total.

But here, we also see the effect of now our feeder store network and actually a lot of deliberate work day by day to optimize this part of the business. We've also decreased 4 stores versus same time last year.

So to summarize, we have shown for years that we have a very strong track record of adaptability and resilience. And we're going to show that also moving forward. And of course, a lot of things have happened.

There is high energy and pace within the organization to drive the necessary changes now to take on also the market environment that we're currently in. And obviously, we now have full focus on the 3 Nordic markets after we successfully closed the final part of the U.K. business now during the first quarter.

We have our long-term priorities. We have the clear long-term targets that we're aiming at, but of course, we also need to be very flexible and adaptable now in the short term. So that summarizes the presentation. So let's move into Q&A.

[Niklas Carlsson, executive]

Good morning, and let me start by handing over to our participants in the telephone conference.

[Operator]

[Operator Instructions] Our first question comes from Magnus Råman from Kepler Cheuvreux.

[Magnus Råman, analyst]

I have a few questions, perhaps starting off with cost savings. You mentioned several initiatives here. Could you give any more specific examples of which potential areas you might have identified in this work?

[Kristofer Tonström, executive]

Yes, Magnus. So yes, of course, as always, high focus on cost. And I think we will share any kind of bigger news like we did on the U.K. last quarter, but it is really down to every part of our value chain.

What can we do to become more effective in terms of how we get products shipped to us, packaging sizes, et cetera, some of those longer term. But also in the shorter term, it's really about ensuring that we're focusing everything right now on the things that customers are willing to pay for.

So even more conversion focused on marketing versus brand building, et cetera. But I don't have any specific numbers or anything I want to share today, but it's really a lot of activity now to look at everything, and we will share news as we go forward step by step.

[Magnus Råman, analyst]

All right. Great. And then you also mentioned here another initiative moving some sourcing to India. I believe that was a new sourcing market for you.

Can you give any examples of price differences on comparable items when you move from -- I guess it was predominantly from China previously to India to get a grasp of the magnitude of change here?

[Kristofer Tonström, executive]

No. So we are making a lot of changes within our sourcing, and we have done for a while now in terms of adapting the sourcing strategy. And obviously, price is one key factor, but also there are other things. So for us, overall, we want to have a broader -- we want to manage risk in a broader way to have more places to source from in terms of geopolitical risks, et cetera.

We also want to ensure that we have closeness -- more closeness to home. We want to ensure product quality, but then also as much as possible cost -- focusing on cost savings and at least remaining also on the cost levels.

So specifically looking at India, there are some good things in terms of the Indian market. One is even though it's far away, the transportation from India is a bit faster. And also, there are a lot of areas where there could be opportunities. It's early days. We're placing first orders right now.

And obviously, we've been going on a bit longer now in Poland and Vietnam. But it has more -- there are many more reasons than only cost. But of course, the key thing for us is to weigh all of these things together. So nothing specific that you should expect in terms of gross margin impact of this in the short term.

[Magnus Råman, analyst]

Sure. All right. And then on -- more specifically on your performance here in August then driven by online growth. You mentioned here a few -- you mentioned feeder store network and some strategic initiatives to support online.

But would you also say that you have sort of deliberately taken actions to drive sales campaigning and such in August to support the strong online sales?

[Kristofer Tonström, executive]

I mean in the early part of August, we had still the summer sale going on. But looking at the second part of August, we have not done as many broad campaigns, and it's really been more deliberate working category by category, product by product.

And again, we have seen, especially on the food storage, and back to school, et cetera, that we have been relevant with our offer. And here, it's been more to ensure to have adapted the prices on a going basis rather than the broad campaigning.

So of course, our objective is to always drive profitability across all channels, including online, but it's not been based on broad-based campaigns apart from the early part of August.

[Magnus Råman, analyst]

All right. And then you also mentioned here the U.S. dollar strengthening and normally, I guess, you have an ambition to compensate through your retail prices.

But would you say in this market environment that you deem it will be both in the magnitude of the FX change and also the sort of the market as such, make it do deem that it will be tougher for you to compensate here for FX?

[Kristofer Tonström, executive]

I mean first, looking at the magnitude. So obviously, in our annual report, you can see the sensitivity calculation of the U.S. dollar impact on the business. And I mean, if you look at a 10% plus or minus of the U.S. dollar in the full year, that would have SEK 144 million impact on the bottom line. So that's kind of plus/minus 10% and the impact it could have on the full year.

So if you want to have a detailed look there. Then, of course, looking at the near term. Obviously, we have done, as we've talked about before, carefully done a lot of price increases now during spring.

We need to maintain price perception with customers, but we have changed prices on thousands of products during the spring and that was a lot to offset sourcing costs, et cetera. So the new kind of unknown that has escalated over the last few quarters has been the dollar.

So of course, our ambition is to always find ways to offset, but of course, looking at the next few quarters, it will have an impact because it's kind of one thing on top of the other. So obviously, we are working a lot both on the gross margin, but also as said, on the total cost side to do anything to offset.

[Magnus Råman, analyst]

Right. But assume the sensitivity calculations that you have shown for some time that, that's mechanical, so to speak, and what was interested is sort of your historic ability to compensate and sort of to what extent do you expect to be able to compensate this time around compared to historically?

[Kristofer Tonström, executive]

Yes. Now obviously, that's the net impact. And then we have the hedging and then also the other compensation is, of course, pricing. And I think the key thing here, we're going to -- we continue to work with the base pricing as we've done during the spring.

And then it's going to come down a lot to being very smart in terms of how we work with campaigning, et cetera. Of course, the factor there is going to be the market situation.

Looking at the summer, obviously, there was a big downward trend on overall prices across the key categories related to summer. If I look now in the next 2 quarters, the season is longer, also slightly less dependent on external factors.

Our hypothesis is that customers will celebrate Christmas this year as well. And looking at summer, the -- obviously, product composition and mix was also a lot of known brands at pretty high value per item. It's a broader assortment now moving into the fall.

So obviously, the ambition is to have the ability to compensate more with mix and also being even smarter and not in terms of the campaign mechanics, but also we will not be in the exact same position when it comes to large distributed amounts of stock of fairly high-value items as we did see this summer.

So I think that's -- obviously, we are tracking this on a going basis to optimize gross margin, but -- and we will do everything to offset. But again, it comes on top of the other things that we have talked about for a while now.

[Magnus Råman, analyst]

That's all for me.

[Operator]

The next question comes from Carl Deijenberg from Carnegie.

[Carl Deijenberg, analyst]

So two questions from my side. First of all, on the gross margin here in Q1. The contraction 430 basis points in Q1, and you talked about the largest impact coming from the sort of increased markdowns on the summer inventory here at the end of the quarter.

Could you just give a sense or quantify maybe sort of the -- maybe the exact contribution on that out of those 430, is that 200 points, 250 or sort of ballpark how much was that out of the total?

[Kristofer Tonström, executive]

I mean if you look at -- sorry, I'll jump back in the slide, I think it's easier. So if you look at the bridge that we shared -- sorry, that we shared here in the presentation deck.

We actually see and also as we write in the report, you have price increases, sourcing cost and then the campaigns for the summer assortment. They're not exactly the same size, but fairly similar in size, and you can see the relation here on this slide in the deck.

[Carl Deijenberg, analyst]

Okay, very well. And another follow-up on the dollar impact. Obviously, that has moved quite significantly just this week. And I'm just curious the sort of the inventory turn off or the turnover, the pace of it sort of when you purchase today, when will the U.S. dollar approximately how many months from today, is that visible in the COGS?

[Kristofer Tonström, executive]

So obviously, we have an annual turnover rate of the stock at this today over approximately 5 times a year. But of course, there's a huge variation between products. Some products are slow movers, some turnover fairly quickly. . Also, as I said, we have increased inventory now deliberately to be prepared for autumn and Christmas, et cetera.

So the large inventory increase right now obviously was bought at slightly cheaper dollars, but anything under placed orders now that will come in at the end of this calendar and also in the spring next year will, of course, be impacted by the higher dollar.

But it's difficult to give one answer given the breadth of different products and also the different movements of different categories.

[Carl Deijenberg, analyst]

Okay. Fair enough. I think that was all for me. So thank you very much.

[Operator]

There appear to be no further audio questions. Just one moment, we've actually got a question from Nicklas Skogman from Handelsbanken.

[Nicklas Skogman, analyst]

You have talked about how you had a lot of inventory in stores during Q1 and how you sort of decided to do a lot of campaigns to clear that out. Now you are saying that you have a lot of inventory either on its way in or in warehouses. So how should we think about this being sort of different from having inventory in stores?

Are you feeling less need to be aggressive on campaigning. Will you then -- if you are unable to sell the inventory that's for autumn and winter will you then store it for next year because you don't need to transport it back to the warehouse, which you would have needed to do with the stock that was in the stores.

[Kristofer Tonström, executive]

Yes. So obviously, the -- we never want to first send the product to stores and then bring it back into DC. Once we have distributed it out, obviously, we want to sell it. And again, we did place a big bet this summer. We distributed more than we normally do to be prepared for fast weather changes, et cetera.

So that's obviously why we took full responsibility of that with the cleanout. I think looking at the next couple of quarters now and also looking at the season we're going into, the composition of products are slightly different. Again, not as kind of weather-dependent, mosquito dependent, et cetera.

Second, also, kind of value per item slightly less risk. So obviously, one of the key things we're doing right now is ensuring that we optimize we want to have full stores moving into autumn Christmas.

But how can we risk mitigate so we don't put too -- kind of high-risk items out too much into high inventories. So that's obviously the work we're doing right now.

The second thing is, of course, that the season is also slightly longer. And of course, the most sensitive part is Christmas -- with Christmas Stars, et cetera. But if I look a lot -- at the rest, a lot of things that we sell during autumn will also be able to be sold across Jan, Feb, March.

And as done now with the summer stock still DC, which is a fairly small part now of the stock value. We keep that until next summer. And we judge that, that is the right thing to do because there is not kind of like seasonal colors and et cetera, it's pretty timeless products.

So we'd rather keep them and sell them at full margin early next summer. And of course, we're going to have the same way of approaching now both autumn and Christmas, but of course, there is a bit of a puzzle to get that in place to have full stores, but with the right items. So we've learned a lot from what we did now in the summer.

[Nicklas Skogman, analyst]

All right. And one question on the demand sales in the past quarter. If you look at -- or if you compare sort of the seasonal product demand and sales of that versus, I guess, nonseasonal or evergreen products?

Did you see a big difference? I guess what I'm trying to sort of get an understanding of is how much is summer product fatigue and how much is just a generally weak consumer?

[Kristofer Tonström, executive]

I think it's a little bit of a mix in terms of the consumer willingness to spend. But looking at the categories, the biggest part of the sales drop versus our expectations and the biggest part of the gross margin impact were on the high summer season items.

Looking at the more base sales the rolling 12 months assortment, some of this bread-and-butter categories of Clas Ohlson, that was much, much more intact.

So obviously, the big bet on the summer categories that not paying out was really the key thing that drove down both sales and gross margin. So of course, that's why also moving forward, having an even higher focus on the day-to-day bread-and-butter, the needs categories is going to be very important.

And then, of course, looking at the summer categories, either you need the fan because it's hot or you don't. And we also saw that consumers didn't want to spend NOK 2,000 in case actually the weather turned. So of course, that's what was driven by the wallets of the customer versus external factors, it's hard to know exactly.

But the biggest drop both and the biggest impact on gross margin was season related and season product related. So I'm not worried about our base proposition that also is related back a lot to the reasons we go for the missions is to also be slightly less dependent on the big seasons.

[Nicklas Skogman, analyst]

Okay. Very good. And then I think you said in regards to August sales that roughly half of the month was sort of a continuation of Q1 in terms of campaigns and so on, while perhaps second half was less, so was that correct, sir?

[Kristofer Tonström, executive]

Yes, approximately so.

[Nicklas Skogman, analyst]

Okay. Good stuff. And if you would sort of then compare the lower freight prices versus the higher dollar impact, the net effect of those 2 over the coming quarters, let's say, I guess maybe the freight prices will beneficial for the dollar will start impacting? Or how do you see the net effect of those 2?

[Kristofer Tonström, executive]

Yes. So the kind of quarter-on-quarter transportation cost, we will start meeting looking at the graph of 16,000 there. We're going to start meeting that base obviously sooner than when the dollar will really start impacting. And then over time, of course, it's going to be a question of mix, how much they offset each other, but that's right.

[Operator]

There seems to be no further questions. I will turn the conference back to you, speaker.

[Niklas Carlsson, executive]

Thank you. And we have no further questions from the webcast audience either. So I'll hand back to you, Kristofer.

[Kristofer Tonström, executive]

Okay. Thank you very much for taking the time with us this morning. And obviously, we are on our end fully committed and fully energized to take on also this very challenging period of time in the market right now.

But we do really believe in our base opportunities and our base position to actually take on also the consumer needs now moving forward, even if it's in the shorter term will, of course, be challenging. So thank you very much, and then see you again soon.