Clas Ohlson Aktiebolag (CLAS-B) Q1 2027 Earnings Call Transcript

Good morning and welcome to the Klaus Olsson Q1 report presentation. My name is Christophe Jonström and I'm CEO and I'm here together with Pernilla Wahlfridsson, CFO. Looking at today's agenda, we'll cover the general business update, move into financial development, go through events after the reporting period and then I'll summarize before we will move into a Q&A. so first of all highlighting the first quarter of 26 27 we have had a strong start to our new year we continue to grow we grow profitably and we also continue to create value looking at total sales organically we were up 11 percent and our operating profit amounted to 339 million, resulting in an operating margin of 12% and a profit increase of approximately a bit more than 40% versus last year. Operating cash flow came in at 663 and return on capital employed came in at 34.9. So all in all, this is resulting into a earnings per share of 475 versus 3.27 last year. Today, we also reported August, which is then the start to our second quarter. And here we saw a 8% organic growth. Then moving into the business update and starting with our financial targets that we updated back in June when we had our Capital Markets Day. The ambition is to, over the next three years, every year to grow at 5% organically every year, deliver around 12% operating margin and around 30% return on capital employed. And these targets, they define the level of performance that we believe Klaus Olsson should be able to sustain over time. They are not a forecast for a year or a quarter, and it's certainly not a ceiling. And our ambition is not simply to reach the targets, it's really to prove that strong growth, profitability, and efficiency can coexist over several years. Next area is just an overview of our competitive strengths. And I think the results coming out of the first quarter is really driven by those strengths and the combination of first of all our assortment where we do have our multi-neach assortment that we reinvent at a very high degree every year and in the first quarter we saw lots of new products being launched while we of course have really focused also on the core assortment. We have our integrated omni-channel with our store network at attractive and accessible locations combined with a strong growing and profitable e-com business and those two in combination really drives customer convenience and also it drives profitable growth and then the last area is the when it comes to the customer meeting of course the ambition is to always deliver qualified service across the board and we could see in the quarter that we had an mps of 56 which is really continued strong strong levels. And then as a foundation of everything, we have our strong brand, where we do have a very broad appeal across multiple target audiences. And as one example of recent product launches and big bets that we have gone after now in the first quarter, I think the robotic lawn owners assortment is a good example. Here we have scaled up the business from five to 12 different brands and we have seen really strong sales growth we also see a range ranging from very affordable private label products on robotic lawn owners up to the most premium a brands and i think that combination really gives customers the opportunity to to find the right product according to their need and wallet also looking at the online business the online sales growth organically was 18 percent in the quarter and our online sales now represents 22 percent of total sales and again i think it's a good example of the robotic lawn owners most of that assortment has only been available online and obviously also then been a driver of the sales growth then moving into the some of the key indicators that we constantly track and look at when it comes to customer relevance and satisfaction starting with product reviews we do get a lot of reviews from our customers when it comes to their satisfaction with our products quality etc and we can see also this quarter that we we continue to deliver on very solid levels second we also deliver when it comes to affordability we're not pushing growth at the expense of the customer experience however we are able to deliver a strong affordability versus customer expectations and then last but not least when it comes to the service and the customer experience again net promoter score coming in at 56. so we're basically growing because customers continue to find relevant products at great value and with best-in-class service so uh last point from my end uh outlining also our consumer missions uh we did a few adjustments uh to the uh to these categories as we uh presented our uh future plan during the capital market stay in june and as we can see on the slide you have the five consumer missions and they are all growing profitably now during the last quarter so it's the breadth of that growth that is important and then we have the adjacent product segments and spare parts contributing to both growth and profitability. So with that I'll hand over to Pernilla to take us through the financial development.

Thanks Christoffer and good morning everyone. Just like Christoffer mentioned we have closed a strong Q1 and now let's take a closer look at figures. The sales momentum continues and net sales were up 16 percent in the quarter of which 11 percent relates to organic sales increase three percent related to recently acquired subsidiaries and currency effect two percent like for life growth accounted for nine percent of growth in the quarter and one percent related to expansion of the store network online sales grew by 35 percent in total of which acquisition stood for 15 percent compared to the end of q1 last year we have increased the store network by nine stores looking at the home markets we saw great performance throughout the quarter with strong organic growth across the board sweden grew by 11 norway 10 percent and finland nine percent organically the macro environment is still volatile we said during the queue for report presentation that we expected freight cost to increase and as we can see spot prices for transportation from Asia to Europe has increased sharply in recent months. We see no impact from the increase in the first quarter but there should be effects starting in Q3, Q4. Regarding currencies we mentioned the negative effect of currency hedging in the report and the background is visible here on the slide with a rapid and and significant strengthen of the NOC versus the SEC. The flip side is obviously the positive impact on total sales, as we have a large share of our sales in Norway. Regarding currency hedging, we have decided to discontinue currency hedging as from now. After thorough analysis, we assessed that it does not create sufficient long-term value. Hedging has primarily shifted the timing of the impact rather than removing the underlying exposure. With more efficient pricing practice, a higher proportion of e-com sales and a strong financial position, we believe that short-term currency risk can be managed without forward hedging. The last forward hedging will mature in Q4 26-27. With regards to purchasing prices, the maintained relatively low level of US dollar versus SEC continues to help us during the quarter. The gross margin increased by 1.8 percentage point in the quarter up to 47.5 percent. Key explanations are the currency effects that I mentioned earlier, both the strong enough and the weaker US dollar, and also that we have been able to get more favorable purchasing prices from our suppliers. And then over to the income statement. Operating profit increased to 393 million sec compared to 278 million sec a year ago. Operating margin landed at 12%. The increase in personal expenses is just as in the last quarters related to higher volume in our logistic chain, wage increases, new stores and acquired businesses. Also other external expenses follow the same pattern as in Q4 with higher costs related to increased investment in marketing and due to the addition of the acquired businesses. The EPS for the quarter was 4.75 sec. The inventory is slightly up compared with the same period last year. We are content with the stock in trade and the slightly increase should be seen in the light of new stores, increased assortment and adding acquired businesses since last year. Cash flow from operating activities totaled 663 million sec compared to 468 million sec last year, mainly thanks to improved profit and improved working capital. Free cash flow for a period amounted to 363 million sec. Return on capital employed was at the end of Q1, 34.9%. And with that, I'm handing back the presentation to you, Kristoffer.

Thank you, Pernilla. Moving into the events after the reporting period. Today we also reported our sales for August and saw a 8% organic growth, totaling sales at 1.1 billion, a bit more than 1.1 billion. three percent comes from acquisitions three percent from currency effect so all in all the total sales was up 13 percent and again we could see a fairly broad development with both sweden and norway growing at eight percent organically and finland at seven also other markets grew at nine percent organically so net net fairly solid across the countries and also as recent months we saw a broad development across the five consumer missions look at the store network in august this year versus last we were up by nine stores so we now have a store network of 250 stores then summarizing looking ahead we see a continued clear path to continued growth and value creation we believe that we are well positioned in our large and growing product niches represented via the five consumer missions the addressable market is 350 billion kronos which means we're still fairly small in relation to that potential we are focusing a lot on the needs driven assortment and with a very high degree of assortment renewal which is a key driver of constant relevance but also customer satisfaction then we have the central our store locations and the store network which is very uh available to our customers uh combined with our full-scale e-com and also effective marketing so net net i think we've seen of the last few years now a solid development and the ambition is of course now to uh to continue to deliver on these levels also over the next few years so looking at the the plan ahead that we also talked a little bit more in detail about during the capital markets day i think the key point is that we do have multiple levers to pull when it comes to continue driving this profitable sales growth moving forward it's not that we have one silver bullet or one big bet that has to materialize it's really about the constant hard work to work across our assortments around and our customer meeting then supported by a strong foundation of operational efficiency and then also selective mna that can really help us evolve so with that we will now open up for questions if you wish to

ask a question please dial pound key five on your telephone keypad to enter the queue the next question comes from nicholas ekman from dnb carnegie please go ahead thank you very much and congratulations on another set of very strong results uh can i just start asking about the safe development during the months here you had exceptionally strong growth in in june and also july and a little bit of slowdown in in august here can you elaborate a little bit on on the weather component or anything like that or or comparisons or or anything else that impacts

the the sales growth between the different months yeah good morning Niklas so yeah looking at the summer months obviously the summer is always a little bit more volatile than other parts of the year and there are external factors influencing us obviously we never like to blame the weather for anything but of course we can explain development by changes in weather conditions etc so what we could see now during the full quarter so may june july was that may in may we had a big peak of selling lots of air cooling fans air conditioning etc so it was a very solid solid month then combined of course with the strong base assortment and also driven a lot by what i explained earlier on in terms of garden machinery etc then looking at july if i look at the comparison last year july was a very hot month we had lots of sales related to heating or air conditioners fans etc this year that part of the business was much slower and we had a bigger effect of that in june so so june was again a strong month on on everything weather related and then July was a bit slower there so there we relied a lot on the base assortment but also on the big bets across garden machinery etc. So a little bit ups and downs during the summer and I think the key message is that we were able to stay relevant despite things moving a little bit up and down. Looking at August slightly lower level than the summer months but again a very solid base delivery and you know again relating a little bit to external conditions last year it was very wet august we sold lots of products related to to flooding and etc whereas this year it's been a hot dry august so again external factors influence but i think across the board we've been able to really play from the all-weather portfolio that that we have developed very clear okay and then moving to the gross margin um you mentioned here the hedges impacting the gross margin negatively so anyway you can quantify that and and i also note that

the knock has continued higher here in uh in august is there's a risk of a negative effect also in q2 you can find the hedging i mean the hedging effect we report in in the quarterly reports.

Approximately year-on-year 50 million negative effect from NOC hedges. And going forward for the next quarter, what has happened is that the NOC has strengthened against the SEC during the year. We enter hedges six to nine months ahead, so to say. So we expect, I mean, if you look at the development of the NOCSEC, you can see approximately that. And so we expect a bit of this effect also to continue into Q2.

Okay. And the decision now to discontinue hedging, I assume that when you look at historical figures, you see that the volatility in earnings is immaterially impacted by these hedges. Is that the correct assumption?

It's more that hedging, I mean, it's more shift the timing of the impact. It's not removing the underlying exposure.

And nowadays, with the ways we work with pricing practice, a higher portion of e-com sales and our strong financial position, we believe that we can manage a bit more short-term volatility. very clear sorry just to compliment that i think we always strive to be simple uh and not creating too many distractions uh neither internally nor also externally so so uh exactly as penila outlined i think this is just one other example of things that we try to unless it really creates value we don't want to continue doing it so so i think that's the conclusion great can i also ask about the competitive environment have you noticed any changes in in competition and i'm thinking specifically like the asian online discounters that have been met with significant import duties i know these may be not direct competitors but has that had any impact to your in your experience on on demand i think the general before i get to the chinese platforms i think the general competitive environment is that you know i think it's been a pretty strong consumption summer that's what most numbers indicate also the gdp development in sweden there are a lot of indications that things are going in the right direction and we've seen others reporting strong numbers i think in general it's been a high consumption and summer um i also i think we've also seen some um as always a lot of uh you know price discounting on the seasonal assortment uh etc uh but all in all you know a general uh general uh positive environment i would say in general looking then at the chinese platforms um we do not see an immediate impact on the class also some part of the business uh since the new tariffs were introduced in july We do see some positive effect on our online businesses. And that is more, I would say, related maybe to that the platforms have invested less in marketing and traffic.

So we have seen a little bit of positivity on the online businesses, but on Klaus Olsson, we haven't really seen any impact that we can correlate with that tariff change super clear thanks for taking my questions thank you the next question comes from eric sandstedt from kepler shuvru please go ahead hi there thanks um yeah just a few questions from ice as well here um in terms of organic growth you you did 11 organic growth in q1 and you mentioned now in the presentation that online you did 18 organically could you give us a corresponding

number for the physical store network in terms of organic growth um let's see i think the like for like in q1 was nine i think so the overall uh like for like development was nine uh but then of course that includes includes the uh online like for like so it's impacted by the 18 and we don't separately uh report the store network uh but i you know based on those numbers i think we can confirm that the like for like on the store side isolated is also positive and that really links back to our key strategy of constantly driving like for like growth in the store network

that's one of the most important priorities for us new stores is not the single biggest growth driver it's an aspect but the key is driving like for like so I think we've seen that in the quarter as well yeah perfect that's helpful and in terms of the strong online growth here in the quarter and what could you maybe give some more comments on what's driving that is it simply more traffic and customer acquisitions or what are you seeing in terms of conversion rates basket sizes and so forth yeah I think the we have seen all aspects of the online business are going in

the right direction with with higher traffic higher basket and the strong conversion in general of. I would say the key driver of the online growth is again, assortment related. We've done a lot of work over the last few years to also define and design more of an online, pure online assortment. I had one example of the robotic lawn owners, but we have others where we have a big assortment that we do not want to distribute to 250 stores available online uh so that has driven both sales uh sales and uh and traffic to the online site um so again assortment and then second uh we continue to work with performance marketing across the different uh parts of the of the business both class also and the others and and here we've also seen that the increase in marketing has really given also a strong return on on investment so performance marketing combined with a strong assortment at the

right prices has really helped the online development perfect thanks um maybe coming back a little bit to to my first question here um because i'm thinking a little bit about the store growth obviously you're still doing positive like for like sales also in the store network but But could you say anything about if you see any sort of risks for cannibalization when the network becomes more dense or are you simply opening up in areas where you don't have a lot of stores and so forth? So a little bit interested in that dynamic.

Yeah, so when it comes to the store network, obviously every new store decision relates back to, of course, delivering on our return on investment demands. longer-term growth, longer-term availability to customers. And of course, a key aspect of that are risks of cannibalization. And the good thing is we have 250 stores. We've opened a lot of stores almost 30 over the last three years. So we have a very strong set of insights and data to make fairly good assumptions and conclusions before we decide on a new store. So I would rather say that for every new store we open, it needs to stand on its own two feet when it comes to store P&L but the other thing is that it also drives the positive development on the e-com business so I'm not worried about cannibalization driven by the new stores and that's also another reason why we do a lot of store upgrades in the base network to ensure that every store is competitive Perfect, thanks.

Maybe finally if I may in terms of the gross margin here if we look beyond fx and hedging could could you say anything about the current purchasing conditions are you still seeing improvements to to the product margins through better sourcing setups or have that largely sort of come through and analyze now where are you in that process yeah so we always of course work with uh improving purchasing prices I think, as you say, of course, there are a lot of external factors helping us now with currencies, et cetera.

There is still a little bit of an effect on the purchasing prices, but it's not the biggest driver as it has been over the last year. So, of course, our job now moving forward is to continue to be effectively working with our sourcing network to always have competitive prices. At the same time, we have seen the producer price index in China, for example, now going up over the last few quarters. So we cannot rely solely on that aspect. And it's also a smaller driver of the improvement than what we've seen in the last year.

Perfect. Thank you so much. Thank you.

The next question comes from Magnus Raman from SB1 Markets. Please go ahead.

Thank you very much, guys. I think I'd just follow on on that last question. Firstly, you mentioned the increase in producer price index in China. But is it fair at least to assume that these should be quite neutral in terms of passing through?

Yeah, most of your competitors are sourcing these goods from the same sort of supplier base in one way or another and would be impacted in the same way. yeah i think in general i think it's fair to conclude now i used to produce a price index in china as kind of a proxy for what's happened over the last few quarters and it's obviously driven by some of the raw material increases that we have seen driven by oil price increase driven by the shortages of of chips and and tech products etc so i use that as a proxy and i think it's fair to conclude as you say that you know this is something impacting most companies that

are importing uh products from other geographies then the other thing is of course now we are less much less dependent on china with our broader sourcing network but but obviously these increases are mostly driven by raw material increases oil price increases etc yeah sure and thereby should be also impacting other sourcing destination or geography yeah right and that then yeah sure thanks and I also wanted to ask about the the increase in marketing spending that you alluded to when you spoke about the increasing in cost and you also mentioned here in one question about your online businesses in particular that they if anything might have seen a little bit relief on the performance marketing costs if i if i got it correctly uh so so this overall increase in in marketing spending is it that that cause the core class also has been increasing its performance marketing spending or is it more traditional marketing costs and and how should we view it going forward yeah so looking at the the increase um it's driven by first of all that we have consolidated the acquired companies and they obviously have high gross margins and then higher degree of performance spend.

So that is one kind of structural part because it was not part of the base. But then to be clear, also on the Klaus Olsson side, we are increasing absolute amounts when it comes to spending. And this is obviously correlated with the growth that we're seeing. And we're only buying traffic that we judge to be profitable. So we're measuring this on return on ad spend return on investment etc but but also the class also part has gone up uh over the last quarter um and we expect uh that to um it is continued to be a key lever for us also moving forward um but of course the online growth and the spend growth should go hand in hand and as long as there is profitable traffic to be had we will continue that so i think it's fair to assume that that this development will continue great that that's very clear and and then maybe one final to penila if you could remind us of the timing of initiating depreciation of the engine

automation investments uh thank you when we finalize the investment i mean we will start to depreciate when we take it into what have we communicated regarding the end date for Yeah, no, I think we, I mean, so we first, now it's the first quarter where we now had significant investment above 130 million.

So that immediately, of course, is an investment that has been done during the quarter. And then what I think we've said is that the investment will be finalized by the fall of 27.

And then we will start to depreciate that investment.

In total so those that it's not these batches so to speak quarterly but but there will be no DNA from this until that finalization.

Until we start to use it yeah.

Okay great thank you very much. Thank you.

It seems we have no more questions from the telco So, but we do have one question from Anders Montage from the webcast. It's two questions.

One about which products that you believe will continue driving growth, and if you have any outlook for the coming year as well. yeah now so starting with the first question uh of course there is a part of the class also sales that is seasonally dependent and of course that is one of the drivers of the high assortment renewal so as we move into the fall and then soon into the the christmas and then winter season of course we're shifting focus on the seasonal side both into christmas related products gifts but also again back to air quality in terms of but now we turn from air conditioners to heaters etc so i think that's one one example and it's of course our job to ensure that we have all the weather portfolio that performs any season and then i think the second key thing is we have a base assortment that is always on always relevant everything related to tech tech accessories fixing products, cleaning products, etc. So it's that combination that constitutes the relevant assortment. And then looking at the coming years, I think I don't want to guide over the coming years more specifically than I think the financial framework does. So of course the job for us now is to continue balancing strong organic growth with strong profitability and strong return on capital. So the financial targets and that framework, I think, gives a good guidance on what we want to achieve over the next three years every year.

And with that, we have no further questions from the webcast or the telco.

Okay, thank you very much for calling in this morning and for all the great questions. We are now shifting focus from summer to fall and then soon we will be entering also the big peak season. That is, of course, important to us at Klaus Olsson. So look forward to seeing you all again in early December when we report our second quarter. So thank you very much.