Clas Ohlson AB

STO:CLAS B

Earnings Call Transcript

[Kristofer Tonström, executive]

Good morning, and welcome to the Clas Ohlson Q2 report presentation. My name is Kristofer Tonström. I'm the President and CEO of Clas Ohlson. And today I'm also happy to introduce and welcome Pernilla Walfridsson, our new CFO since a few weeks back. And Pernilla will have a chance to introduce herself later on during the presentation.

So as usual, we'll go through -- I'll start with the business update. And then Pernilla will take us through the financial development and then a part of the events after the reporting period. And then I'll wrap up and then we'll move into a Q&A.

So looking at the second quarter that we have just reported, we can see that we have delivered 6% sales growth in a very tough market where we actually start seeing a lot of the markets contracting. Especially -- our numbers are driven especially by the online business growing 28% during the quarter. We also delivered an operating profit of SEK 112 million and our financial position remains solid with our net debt to EBITDA at 0.8.

Obviously, during this quarter, it's been extremely important with the value for money perception with our customers. And looking forward, of course, enhanced operational efficiency, flexibility, speed will be more important than ever. So today we'll also talk a little bit about some changes we're making to build a more efficient Clas Ohlson forward, so we'll get back to those details.

We also reported our November sales today. We'll come back to the details here. But it's also encouraging to see that we're growing in November 6% in total, 3% organic. Again, also driven by our online business, despite again, a fairly challenging online market in the recent months.

Looking a bit more into the details of the second quarter, the organic growth amounted to 3%, and our gross margin landed at 37.7%, and obviously a decline since last year and we'll talk through the drivers of that.

Also important to remember that the second quarter last year was a historically strong quarter across all the parameters. But we'll talk a little bit more on the effects on the gross margin in a second. Our EBIT margin close to 5%. And again, the net debt to EBITDA at 0.8.

So our strategic framework that we launched last or earlier this year remains intact, and obviously we're navigating towards our 3 year ambition. And since then, of course, a lot of things have happened and the market has been very challenging. But our relentless focus on building a strong organization, happy coworkers that drives happy customers that translates into sustainable profitable growth remains a key focus.

And adjacent to this strategy, we've also laid out our 4 key growth drivers that we're looking at over the next 3 years. So just a couple of points on each of those.

So the first one. And the key driver of our future growth will be our assortment. We're here to sell great need-based products to our customers. And what we can see across the second quarter is actually positive development across our key categories.

We also see that the pivot that we did earlier this fall to focus even more on energy saving products, money saving products, and also being more deliberate on what our products not only costs to buy, but also cost to own has paid out well. So the growth that we see in the second quarter is very much driven by deliberate choices that were made on a category level.

The second point on availability and convenience across all the channels to reach our customers. We see that the traffic is increasing now in our second quarter compared to the first one across our stores. And looking at our online business, the conversion rates is improving. And also we have done a lot of work in terms of further optimizing our store network, but also in order to give more delivery options to our customers on our e-com business.

When it comes to Club Clas, that's a very important priority to continuously drive that. And this quarter we closed at 4.7 million members. Last year, this time we have 3.8 million members. So we've grown that membership base with almost a million customers over the last 12 months.

We also see that, that is broad-based. We're growing across the markets. And also the sales from our Club Clas members is actually growing 21%. And this remains a key priority for us forward in order to drive value with the right customer groups and also to drive sales and growth windows.

The fourth growth driver is Finland. In October we celebrated 20 years anniversary and we've seen a bit of growth in Finland. Looking forward, Finland remains a priority over the next 3 years. And the key thing here is to get more customers in, the customers that we have, the customers that know us, really like us.

Our NPS levels are higher in Finland than in any other market. And we also said that we are growing with our Club Clas members. Now the key thing is to get more members, more customers. And as a part of the Finnish plan, we have also opened a new store. Our first big box store outside of Vaasa in Finland, and then I'll show a picture of that in a second.

So just a couple of examples on helping our customers save money. This has been a big focus area for us in terms of how we're selling and also how we're marketing ourselves, during this fall.

And that we have examples of both guidance helping customers how to know how to save energy at home. And we have also been much more clear in terms of claims when we talk about the products that are actually are consuming energy, how many kilowatt hours et cetera. And we have seen that has been extremely appreciated by our customers, and we have received more questions than ever when it comes to this type of areas.

The second area where we have been strong, but we have also shifted a bit of the focus to talk even more about bringing food boxes to work and showing that your food lasts longer in your fridge, that has also played out well and we've seen growth across those categories. And, of course, given the food prices across the markets, customers are extremely willing to invest in products that can help their food last longer.

On the availability and convenience, in the intro slide we actually saw a picture of the Linköping store in Tornby that we opened just a couple of weeks ago and we were happy to have 400 customers queuing as we opened that store.

Here's also a picture of the new Finnish store in Vaasa, Finland, which is a bit of a new thing for us in terms of going out to a big box area and competing in a different way in Finland and it's had a promising start so far.

We've also added more delivery options on our online business. So now we also have Instabox in Norway which is appreciated by customers. And we have also added on home deliveries from our feeder stores now via Bring in Norway, so more options for our customers and this has been crucial to handle the increased online volume.

As always, we're obsessed about driving customer satisfaction and ultimately overall value perception. And the value perception is always a combination of the strength of the brand, the service we deliver, and the product quality we deliver, and the price point. It's really the combination of the 3.

And looking at the service level, despite increased traffic, more customers, we've been able to improve our NPS from already high levels. So we saw an NPS level of 56.4% now in the second quarter.

On the product reviews, we keep ranking high with 4.5 out of 5 and versus a target of 4.4. So the customers appreciate the quality and the products that we're selling.

And very importantly during this -- very importantly always, but especially during these times when the households are under economic pressure, it's encouraging to see that we're continuously building our value perception of Clas Ohlson.

So we're measuring this every quarter. The overall price perception of Clas Ohlson and we benchmark ourselves versus the low price competitors in our segments. And the good thing is that we are actually perceived as more value for money than even the low price retailers in the last quarter. And you can see on the scale here from 0 to 100 where we are at 17, where 0 is cheap, 100 is perceived as expensive.

And this is a very important position to work with and to defend and keep longer term, especially as we see that the consumer confidence across the markets are at record low levels. And we also see that the price sensitivity is higher than ever. Customers are shopping around looking for the best offer and are actually leaning on the retailers that are able to have a high value from rating. So it's important for us to continue with that.

Which leads into some of the things we'll talk about later, which are the -- some of the operational efficiencies that we're going into as a company to ensure that we can defend this position also in times when our gross margin is under pressure.

So we are spending a lot of focus and time on all our cost bases. So, of course, across purchasing prices, we start seeing some raw materials going down and of course we're doing everything to get prices in down.

When it comes to transportation cost we also see pricing started to drop here. And when it comes to rental costs, obviously we have the indexation happening next year and we're intensifying our work to ensure that we can agree on good rental levels with our landlords.

But also I said, we're also making some tough choices when it comes to an organization where we are simplifying the organization and we're also simplifying our IT landscape and this will have an impact on the third quarter and we'll have a cost saving impact next year. And Pernilla will talk a bit more about that in a second.

Last but not least, no matter market conditions, economic environment, it is a key priority for us to continuously moving forward versus our very ambitious sustainability strategy and ambitions. And we have some examples here both when it comes to product work that we're doing and also supplier work.

And one of the highlights on the product side is that we continue to see growth in our spare parts assortment, and we're now rolling that out to even more physical stores to ensure that you can easily pick up a spare part to an otherwise functioning product.

This is good for sales, it's good for the value perception with our customers. And it is also good from a sustainability point of view to ensure that the products we have sold lasts longer with our customers.

The second point is on the product assessments. We have our sustainability assessment model. And here we take all the private labels. We run it through this model to ensure that we're doing everything to improve the product from a sustainability point of view. And now it's encouraging to see that almost 50% of sales on private labels have now gone through and been ranked according to this model.

On the supplier side, we have now 99.1% suppliers free from critical findings. And we do audits, obviously, related back to our code of conduct on a going basis.

And when it comes to environmental assessments, 85% of our purchase volumes are now covered, and we've actually done 165 environmental audits just in the last quarter.

And so with that, I'll hand it over to Pernilla to talk a bit more about the financial development and also introduce yourself. So thanks Pernilla.

[Pernilla Walfridsson, executive]

Thank you. Good morning. Nice to be here. My name is Pernilla Walfridsson. And I started as CFO for Clas Ohlson a couple of weeks ago. Before that I was CFO for Nobina, but I also have a background within retail companies like IKEA and also a long journey together with Byggmax.

And in parallel, I also have Board assignment, for example, NetOnNet. I'm really pleased to be a part of Clas Ohlson's journey going forward. But let's dig into the figures starting with the sales.

Sales recovering in Q2 after a week Q1 and sales are now in line with the same level as a year-to-date, as the same period last year. Total sales grow 6% to SEK 2.2 billion, and organic sales was up 3%. And I would also like to highlight that our online sales grow 28% in the quarter and 17% year-to-date. And the online sales are now 11% of the total sales.

Looking at our markets, we see a positive development overall. And our organic sales grew 4% in Sweden and Norway and 2% in Finland. Looking at the total sales versus that Sweden grow 4%, Norway grow 10% and Finland grow 8%. Being new into the company, it is impressing to see the strong position that the Clas Ohlson holds in its home market.

And also the strong price perception as Kristofer talked about before. It also -- it is also pleasing to see that the sales in Norway has picked up significantly in recent months.

Macro continue to put the pressure on our gross margin. We have the high sourcing costs, the weak currency as the 2 main factors with a large impact. We also see that the U.S. dollar is still historically at a very high level. And we have tried to illustrate in this diagram that during the second quarter it is macro related factors that are the main explanation to the lower gross margin. But we also see in the second quarter that customers are awaiting sales and campaigns and we also see mix effects.

Turning to the financial statement. We see that we have an operating profit of SEK 112 million compared to SEK 204 million the same quarter last year. However, bear in mind that last year was a record quarter and also that we got a one-off repayment from FORA that contributed with SEK 25 million SEK.

Looking at the selling expenses, we see a decrease of 1.8%, and that is due to that we have the higher sales figures and we also see a rather flat administrative expenses, and we continue our focusing on costs. Another thing to highlight on this picture is that we have a one-off in Q1 connected to the closing of the U.K. operation amounting to SEK 75 million.

The inventory value increased to SEK 2.8 billion in the end of the period, primarily orders of Autumn and Christmas products. The inventory values are affected by macro related factors, sourcing cost, the currency, and also transportation costs. But it is also positive to see that we have a very high on shelf availability when we're entering a most important sales period.

Turning to the cash flow, we see that we see an effect on working capital and that is then connected to -- that we have paid suppliers when building up reliable inventory in front of the most important sales period.

I would also like to highlight that we have a dividend payout of SEK 412 million in September and we have all approved credit facilities of SEK 800 million, and we are using SEK 600 million approximately out of those. Net debt/EBITDA is 0.8x and we can conclude that our financial position is well in range with our financial targets.

Moving into some macro trends that we see have an effect on Clas Ohlson both now and going forward. And starting with a freight cost. We see a sharp decline, but still at the higher level compared to previous. And it's also important here to bear in mind that we have a lag effect connected to inventory turnover, but also to long term freight agreements.

Looking at the currency, we see a positive effect from the development of the NOK/SEK, but by far a greater effect on the weak SEK connected to the U.S. dollar.

Looking ahead and looking at event after the reporting period, as Kristofer mention, we are now taking measures to mitigate both cost inflation and to make Clas Ohlson efficient. And we have -- we continue to focus on purchasing price, transportation cost, and rental cost.

We have closed to 6 stores during the first 6 months. But we are continuing now to simplify a way of working and we have decided to reduce 85 FTEs at our offices. And we are also simplifying a way of working through rationalizing our IT system, in line with a strategy, and that we are also now reducing office space.

This initiatives will give us a cost saving and decrease depreciation of approximately SEK 110 million that will have the full effect next financial year. But it will also entail a one-off cost of SEK 120 million that will be reported in Q3.

I then hand over to Kristofer.

[Kristofer Tonström, executive]

Thank you, Pernilla. So moving into the November sales development before wrapping up and moving into Q&A.

So looking at November, our total sales was up 6%, and it's the second time we're above SEK 1 billion sales in the November month. Organic sales was up 3%. And we saw strength, especially in Norway, with 8% growth and also solid delivery in Sweden. Finland was weaker after a stronger October, but the other 2 markets compensated.

Also encouraging to see that our online sales was up 27%. And we saw an overall gift week that coincided with the Black Friday and the Black Week that delivered strongly. We saw significant growth during that week. And also looking at the promotional levels, et cetera, it was not that much -- we didn't see a huge difference versus previous years. So we're good overall delivery across November.

We should also remember that we have 5 stores less in the comparison period here in November. So the season sales and the Christmas sales have started in a good way now in November.

So quick wrap up before moving into the summary. So, obviously, we believe that we are very well positioned in an uncertain market despite the turbulence and the challenges that we are all currently facing. And the sales growth and the loyalty from our customers is really a strong proof point that we are able to adapt and that we are also playing a significant role in terms of need-based products also during this environment.

And we are doing everything to increase and strengthen our customer position, so the loyal and larger customer base is going to serve and drive value longer term. We also see that increased customer satisfaction is crucial during this time, but also the value position is important today, but also very important tomorrow.

And of course there is uncertainty. We do not know what will happen when the households will have seen the full effect of all the price and cost increases hitting them with rent increases, interest rates, food prices, energy prices, et cetera. So we are expecting a continuously uncertain environment.

And then it's more important than ever to focus on the customers and drive loyalty, while of course also doing everything to make ourselves simpler and more effective, which then links back to what Pernilla talked about. So, obviously, some tough choices on the organizational side and some choices also to simplify the IT landscape to make us simpler forward.

So that concludes the presentation and we'll now move into our Q&A.

[Kristofer Tonström, executive]

And as always, let's start and see if we have any participants in the telephone conference that has lined up for questions.

[Operator]

[Operator Instructions]. The next question comes from Carl Deijenberg from Carnegie.

[Carl Deijenberg, analyst]

So a couple of questions from my side. First on the -- if we could elaborate a bit more on the details on the sort of the gross margin contraction during Q2. And then you highlighted the sort of significant drivers here, which I guess is the currency and the increased cost of transportation, but also increased markdowns.

But would it be possible to say anything, sort of, an approximate mix, sort of, the 540 bps decline year-on-year. Would it be sort of possible to quantify these 3 impacts out of the total?

[Kristofer Tonström, executive]

Yes. Good morning, Carl. So as Pernilla showed in the bridge on the gross margin, that is showing the relationship between the 2 buckets. So a majority of the 540 basis points comes from the purchasing prices, transportation cost, but also currency related.

And obviously, we should remember that, again, what we have sold during the last quarter were also purchased during previous times when all of those factors were higher. So that's a vast majority of the decline. And then the other part is, obviously, promotion and mix. So the relation in the graph is more or less indicating the relationship between those 2 factors.

[Carl Deijenberg, analyst]

Okay. Very well. And following up on the topic and looking down further on the P&L, you had very good cost control here in Q2. I think your OpEx was rather unchanged during in Q2, while it grew around 5% during Q1. So I'm just curious sort of how you're reasoning on the OpEx going forward? Are you a bit more sort of cautious on your spending here considering the gross margin development? Or how should we think about going into Q3?

[Kristofer Tonström, executive]

Yes. So obviously, we need to balance and be very tight on any spending. And obviously, the 2 key things that we are focusing on is ensuring we have the right service in our stores, so we will maintain a high level of service there. And then, of course, also smart marketing choices we continuously do.

And we can see that across the last quarter that we have been able to do a lot of relevant marketing here and now, PR, et cetera, to get the messages out. But, yes, tight cost control to do anything to manage also the gross margin situation. And it's a balance act to also ensure that we can continuously drive the sales that we have seen.

And I think as you point out, in the second quarter, we have had tight cost control while actually seeing 3% organic growth, and we want to ensure to continue that forward.

[Carl Deijenberg, analyst]

Okay. And then following up on another topic here on the cost savings. You're talking about SEK 120 million in one-offs here in Q3 and around SEK 20 million of those relates to sort of the employees' layoff. And I'm just curious sort of the other remaining SEK 100 million, is that an IT write-down or what kind of IT initiatives are we talking about here if you look on sort of more on the details?

[Kristofer Tonström, executive]

Now a majority of the remaining is the write-down of IT systems. And we've done a review of the system landscape that we currently have. And we judge that there are certain systems we do not see the need of moving forward. So we are actually scrapping those, and that is the majority of the remaining one-off cost. And we're also not expecting that any of those systems will be replaced forward.

[Carl Deijenberg, analyst]

Okay. And then my final question was on the sort of the layoffs that you're doing on the personnel side. Could you say anything on sort of what kind of functions that relates to? And sort of do you see any risk of sort of loss on sales in a longer perspective on what you're doing now or anything on the customer experience? Or yes, just curious what kind of functions you're adjusting there?

[Kristofer Tonström, executive]

Yes. So, obviously, we do not make any of those choices lightheartedly. Of course, there's been a lot of work to ensure we find the right levels and the right balance here. The 5 FTEs that we relate back to is across functions. It's across offices. We have 3 offices in Sweden. We have offices in Oslo, Helsinki, but also in Shanghai. So it has an impact across all the functions and across all the offices. So it's not one function.

And of course, the ambition is to become simpler, work in a smarter way, and also doing it in a way to continuously drive sales rather than actually having any impact on the sales. So that's, of course, the ambition, and we've done this carefully to find the right balance also moving forward. So that's approximately the overview of the roles impacted.

[Operator]

The next question comes from Andreas Lundberg from SEB.

[Andreas Lundberg, analyst]

If I start on the demand side, can you talk about what products sold well and what did not sell well during the 4 months? And specifically, what you're thinking now about the lightning assortment when we head into Christmas?

[Kristofer Tonström, executive]

Yes. Now, so looking at the Q2 sales and then also November. So across Q2 we saw a lot of increases in sales on energy saving products light bulbs, et cetera. We also saw growth in terms our organized assortment, so the food storage, et cetera.

Then looking more into November. November, we both sold a lot of gifts during gift week or what we expect to be gifts during gift week, so kitchen appliances, et cetera. But we've also seen an encouraging development on Christmas. So one of the learnings from last year was that we wanted to really start Christmas a bit earlier.

And here, we have seen a huge demand actually for our Christmas trees. We're becoming somewhat of a Christmas tree destination. We see now with best in test scores on Christmas trees, et cetera. We've also seen actually that the Christmas decoration both lightning and Christmas stars, et cetera, has also started well during -- already at the end of November.

And then the string light sales and the lighting sales is, of course, an important part. And here, we saw a bit of softness in the beginning with, of course, customers being very aware of the energy prices and being careful before buying. But we've also seen that starting to pick up now in November. So that's overall need-based products has continued to be big across the 4 months, anything related to energy saving, food storage, et cetera, and then also a good start on all the Christmas products. And then last but not least, also the gifts -- expected gifts.

[Andreas Lundberg, analyst]

That's good there. And then on the inventory side, can you talk a little bit more about what it consists of?

[Kristofer Tonström, executive]

Yes. Also the…

[Andreas Lundberg, analyst]

How do you view the inventory at the moment?

[Kristofer Tonström, executive]

So of course, the inventory is high with SEK 2.8 billion worth of products. Then looking at the composition of the inventory, I would say it's very, very solid in terms of products that we believe we're going to be able to sell. We do not have that much left from the summer.

As you all know, we sold out a lot of the summer products via stores. There's still some summer products that we expect to start activating early spring. But the majority of the increase of the inventory versus last year is related actually to Christmas products, everything seasonal, but also an increased focus on the base assortment, anything that has to do with consumables like batteries, plastic bags, all of these basics, which we also believe that we're going to be able to sell.

But then, of course, a big part is still Christmas-related string lights, et cetera. So the ambition is to get as much as possible of that out in the next few weeks. But all in all, the composition of the inventory, I would say, is good. That we should also remember that some of the value increase in the inventory is obviously also driven by the factors like transportation cost dollar, and purchasing prices, which drives a bit more value than volume in the inventory.

[Andreas Lundberg, analyst]

Right. And then maybe back on the efficiency measures you're taking. Did you say that the rationale is both from the offsetting cost inflation and making the company efficient as such?

[Kristofer Tonström, executive]

Absolutely. So of course, we are -- I mean, we are seeing pressure. We have seen a big pressure on the gross margin over the last couple of quarters. And as we all know, the U.S. dollar will continue to have an impact. So there are a lot of macro-related factors to offset cost. But of course, we're also trying to do it in a way that where we become even more simplified, even more focused.

We have the 3 markets now. And as you all know, we took out the final part of the U.K., Amazon, et cetera, in the first quarter. So of course, the ambition is to simplify, make us faster, and more efficient as a consequence of this as well.

[Andreas Lundberg, analyst]

And lastly, on the gross margin, you showed some pictures about the pricing as such developed for transportation, et cetera. Given your lag lead-times, do you expect these drivers to be worse or improve going forward or in the near-term quarters?

[Kristofer Tonström, executive]

So obviously, the transportation cost will gradually come down and be a positive driver. But then obviously, the U.S. dollar will continue to worsen. And then -- so those 2 factors we already know will have an impact.

And then, of course, when it comes to anything on stock today, we know that they have been -- the products have been bought at fairly high prices. So anything we do now as we're trying to get the inventory down and then also buy new things, of course, we're doing everything to get purchasing prices, et cetera, down. But the 2 main factors is transportation cost down, U.S. dollar impact up in the next few quarters.

[Andreas Lundberg, analyst]

And lastly, the Q2 gross margin on last year or the comparable margins it was exceptionally high in Q2, right, and not so much on the other quarters, correct, or?

[Kristofer Tonström, executive]

Exactly. So looking at last year, the gross margin was 43.1%. And if you look back at the last few years, on average, we've been between 40% and 41% during that quarter. So of course, there were a lot of factors driving the higher gross margin last year. Actually, last year, we had some positive currency effect. As an example, we had a U.S. dollar at below 8.50, so that was one of the drivers.

But as you said, the Q2 last year was exceptional, both in terms of gross margin, EBIT delivery. And then also in terms of sales in -- the sales was also developing fairly strongly. So the comparison set is high, yes.

[Operator]

The next question comes from Magnus Råman from Kepler.

[Magnus Råman, analyst]

Welcome, Pernilla. Yes. The major topics of the gross margin here has been very dissected in terms of FX and transportation. But you also mentioned in the presentation the campaign activity and mix effect.

And of course, a more price aware and campaign attracted consumer might be the -- what to expect in the near-term quarters. But how about this negative mix effect that you also mentioned? Should we regard that to be sort of structural or at least longer-term trending? Or could that turn in the next few quarters, please?

[Kristofer Tonström, executive]

Whenever we talk about the mix effects, it obviously relates both to private label versus known brands and then also mix in terms of channels and then also mix in terms of categories. So the mix effect, one thing is a bit more well-known brands sold online, which obviously has a bit of an effect. Some of that, we believe, is built in as we build and drive the online business. But that's not a major part. The key part of the mix is more the customers actually waiting for campaigns, and waiting for offers, and also buying when the prices are lower, actually. So that's the biggest driver of the mix.

But there is also a little bit built in as we continue to grow the online business, which also means we -- and that's also other reasons we're making ourselves more effective to offset that part.

[Magnus Råman, analyst]

Right, because that actually leads to my second question. Since I mean, online is becoming quite sizable for you, now 14% penetration in November here. So what are your -- do you have any long-term plan to get profitability in the online up to sort of group average? Or is it more that you will accept this long-term sort of dilution from increased online penetration and that a general sort of efficiency measures should contract this. And perhaps if you could also remind us of the split of home delivery versus Click & Collect, and the willingness in consumer to pay for home delivery and such?

[Kristofer Tonström, executive]

Yes. No. So I mean, in general, we have the exact same profitability demands across any channel, and that holds true also for our online and e-com business. And of course, it's about giving the customers what they want and then also driving profitability. So that work is constantly ongoing in terms of the right pricing, but also ensuring the delivery part being as effective as possible.

So relating to that to your second question is, now actually during the last period even more than 50% of sales have, one way or the other, passed through our store network when it comes to the online sales. So Click & Collect, pick up in store is a big thing, which is obviously good for the customers, but also very cost effective. And then also the feeder store part is growing as well.

And as you know, we are actually charging customers for home delivery, et cetera, and they're willing to pay. So more than 50% has gone via the store network, but then also we are seeing better and better effect of the work we have done on DC in terms of efficiency and getting more orders out quickly.

And obviously, that holds true to ensure high. The good thing is that the average ticket value, the sales online is higher than it is typically in the store environment. So ensuring we drive that and then keeping cost per order down is obviously critical for the online business. And we do constant work to optimize that to drive the profitability.

[Magnus Råman, analyst]

That's really helpful. And then on Finland, you mentioned here that you have a very strong standing or customers are really happy the ones you have in Finland. But this need to attract more customers. Does that imply a need in your opinion, to invest more in marketing to get the scale? Or how do you view that?

[Kristofer Tonström, executive]

I mean customer acquisition is extremely important in Finland to get more customers, more visitors in. And a part of the Finnish growth plan that we activated across Q2 included marketing. So we have a new brand campaign that we're running, and we're doing new things to really strengthen the position of the Clas Ohlson brand.

As we move forward, we will continue doing that. But of course, it's also about optimizing and doing the right level of marketing to really get the customers in and really make them members. So the Finnish plan across the next 3 years includes also investing marketing but doing it smartly to get more members into Club Clas.

And then we also see strong development online in Finland. The feeder stores gives us a unique opportunity to deliver now same day to next day to 99% of Finns, which is actually very strong in the local Finnish markets. So we believe that over investing a bit in online is worth it to get more customers in. But of course, we'll do it in a responsible way to also balance now given the overall cost pressure on the company.

[Magnus Råman, analyst]

Then a final one for me on the onetime cost here. A majority of those IT write-downs, and you mentioned you will not procure sort of any replacement systems, so should we expect that the majority of this onetime costs or at least all which were not the staff-related are non-cash type of items?

[Kristofer Tonström, executive]

Yes.

[Niklas Carlsson, executive]

That's our final question from the telephone conference, and we have a couple of questions from Stefan Stjernholm, Nordea, from the webcast.

With the indexation of some 11% of rent in Sweden, the outlook for next year looks challenging, he writes. How is negotiations with landlords progressing and what kind of increase should we expect for 2023?

[Kristofer Tonström, executive]

Yes. So great question. And obviously, the indexation is linked back to the October KPI of 10.9%, which is, of course, true for the full retail in Sweden, but also impacts Norway and Finland. And that indexation is obviously happening as part of the contracts. But our ambition is to ensure that we have strong agreements across stores to ensure maintain profitability.

So it's too early to tell exactly where we will land. But it's very clear that Clas Ohlson is one of the absolutely most important, the biggest traffic drivers to shopping malls, to city centers across especially Sweden and Norway, but also to a certain extent in Finland. So we have high expectations to ensure that we can continue a strong partnership as we've had for years with our landlords.

But for now, obviously, the indexation is happening and then the work is ongoing to ensure we reach good agreements across the stores and the countries. And as we have shown, as Pernilla talked about in the last 6 months, we have closed now more stores in Sweden, we closed stores in Finland. And we don't want to close stores. We want stores to be profitable, and we want to grow with our store network. But if we can't reach the commercial terms, we will intensify that work even further. So that's -- but I'm hopeful the strength of the Clas Ohlson brand and the growth that we see across the brand is going to help us a lot here.

[Niklas Carlsson, executive]

And a final question from Stefan as well regarding gross margin and the outlook for fiscal Q3 versus Q2. And how are external factors developing quarter-over-quarter? And do you expect more campaigns year-on-year also in Q3?

[Kristofer Tonström, executive]

And then, as you know, we don't guide on a quarterly basis on gross margin. But as I said, the gross margin will continue to be under pressure. The U.S. dollar will have a big impact. We'll get some positives from the transportation cost, as I already talked about.

And then when it comes to promotions, I think we have shown in the bridge for this Q2 that we're doing everything to be responsible in terms of how and when we're campaigning and doing promotions. So we intend to continue doing that.

And then of course, ensuring the price perception, value perception is important, which also means, of course, we are also dependent on what happens in the market with price levels. So that said, we should expect the gross margin to continue to be under pressure as long as the U.S. dollar continues, but then we do everything to offset with the pricing.

[Niklas Carlsson, executive]

And since there's no further questions from the webcast, I think we can close the Q&A session for this time.

[Kristofer Tonström, executive]

Okay. Great. Thank you very much for calling in this morning, and we'll now run out and sell more products leading up to Christmas. That's the key focus of the full Clas Ohlson organization. So we'll see each other again as we close Q3. Thank you very much.