Welcome to Bang & Olufsen's interim report for the third quarter of 2025, 2026. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode throughout the presentation, and afterwards there will be a question- and- answer session. To ask a question, please press five, star. I would now like to introduce CFO and Interim CEO, Nikolaj Wendelboe. Nikolaj, please begin.
Hello, everyone, and thank you for joining today's webcast. I will start by taking you through the highlights of the third quarter and give an overview of the commercial developments across the business. I will then walk through the financial performance for the quarter as well as our updated outlook for the year before we open the line for questions. Now please move to slide three. On March 23rd, we published preliminary Q3 figures and adjusted the outlook for the financial year 2025, 2026 due to lower than expected Q3 sales and the expected impact from increased geopolitical tension and economic uncertainty in the remainder of the financial year. We also withdrew our midterm financial ambitions for 2027, 2028. I'll come back to the outlook details later in the presentation.
Despite positive like-for-like sell-out growth across the group, supported by continued strong performance in our branded channels and in Win Cities, revenue came in lower than expected in Q3. This was due to a significantly lower than anticipated performance of our newly launched soundbar, Beosound Premiere. As we stated in March, we are in the process of strengthening our commercial operating model, specifically the coordination between marketing investments, retail execution, and product launches. This is not only a near-term priority, we believe this is key to unlocking Bang & Olufsen's full potential over the medium and long term. Following quarter end, we relaunched Beosound Premiere with two new colorways and at a revised price point. While it's too early to conclude, we have seen improvements in the product sales since relaunch. I would also like to mention that the newly launched earpieces, Beo Grace, reported good performance in line with expectations.
Last week, we also added a new colorway to the portfolio, the Honey Tone, which is a rose gold version in addition to the Natural Aluminum version. During the quarter, we continued to expand our retail footprint with the opening of our largest ever flagship store in San Francisco, featuring the Culture Store concept, as well as a new Culture Store in Shenzhen and a new store in Hamburg's HafenCity district. Finally, and as stated in the announcement on March 23rd, the CEO search is progressing as planned and the board expects to announce a permanent appointment in the coming months. Today, we have no further comments regarding a new CEO. Please move to the next slide. I would like to add some details on a few important retail openings during the quarter.
As mentioned in January, we reached an important milestone in December with the opening of our partner-operated flagship store on Union Square in San Francisco. The store features our Culture Store concept and is the largest Bang & Olufsen store globally with retail space of around 350 sq m. In Hamburg, we opened a new 250 sq m store in the dynamic and vibrant HafenCity district. The store represents an upgraded retail presence in a strategically important location. We also opened our first Culture Store in China at the MixC Luxury Mall in Shenzhen, which marks an important milestone in the evolution of our retail concept in China. These openings reflect our continued focus on improving both the quality and relevance of our physical network and supports our ambition to elevate the brand experience in key metropolitan areas and markets globally. Please move to the next page.
During the quarter, we prepared the relaunch of Beosound Premiere, which was communicated mid-March. The initial market response to Beosound Premiere was significantly below our expectations. This has been an important learning and a good example of how our go-to-market operating model needs improvement. The launch has reinforced the need for better alignment between product launch, retail execution, and marketing investments. Premiere has been repositioned at a lower price point with a price reduction of around 20%, placing it more naturally within the soundbar category and in our portfolio logic. The relaunch strengthens the overall portfolio architecture with a clear separation between our vision offerings, namely the Beovision Harmony, the Beosound Theatre, and the Beosound Premiere. Premiere is now offered in two new colorways, the Black Anthracite and the Gold Tone, which we expect will have a positive impact on sales.
As I mentioned earlier, the sales performance of Premiere has been positively affected by the launch, but it's still too early to judge the success of the product. Please move to the next slide. I'll now move into the financial performance for the quarter and the outlook for the year. Please move to the next slide. Starting with sell-out, we delivered positive like-for-like growth of 1% at group level, marking the sixth consecutive quarter of like-for-like sell-out growth. Looking across our regions, we saw a mixed picture during the quarter. In EMEA, like-for-like sell-out declined by 8%, partly due to the performance of Beosound Premiere and a generally weaker consumer sentiment in larger parts of Europe. The company-owned stores continued to perform well with double-digit growth, while e-commerce and mono-brand stores declined, resulting in an overall slight decline across branded channels.
Multi-branded eTail reported declines, which was driven by launch effects last year, in addition to less promotional activities this year. In the Americas, like-for-like sell-out declined by 16% overall. Here we are also seeing lower consumer sentiment in response to the economic uncertainty. Within branded channels, performance was more resilient, with a low single-digit decline supported by double-digit growth in company-owned stores. eTail reported double-digit decline as part of decreasing promotional activities. In APAC, like-for-like sell-out increased by 28%, and in general, we are seeing positive momentum in the region across most markets, with double-digit growth across branded channels and growth in both multi-brand and eTail. Our active Win Cities, consisting of New York, London, Paris, Hong Kong, and now Tokyo and San Francisco, continue to perform strongly, delivering double-digit sell-out growth for the seventh consecutive quarter, driven primarily by company-owned stores. Please move to the next page.
Turning to group performance. Revenue increased by 1.3% in local currencies, while reported revenue declined by 1.7%. Beosound Premiere contributed less to the top-line development during the quarter than we had anticipated, which in particular had an adverse effect on our mono-brand channel. Within branded channels, revenue grew by 1% in local currencies. This was driven by continued double-digit growth in company-owned stores, which more than offset softer performance in mono-brand and e-commerce. Looking at product categories, Flexible Living delivered strong performance with high single-digit revenue growth across most speakers, while the Staged category also grew modestly during the quarter. This was partly offset by a decline in On-the-go, primarily reflecting strong launch driven comparable from last year, end-of-life sales of EX, as well as decreasing promotional activities in certain channels.
Gross margin continued its positive trajectory and improved to 57.5% in Q3, an increase of 2.1 percentage points year-on-year and 3.3 percentage points for the first nine months. This reflects a favorable product mix and channel mix, as well as continued margin expansion across categories. EBIT margin before special items was 1.9%, reflecting the lower-than-expected revenue performance. In terms of special items, we had both positive and negative items impacting the quarter. Special items related to EBIT amounted to -DKK 19 million, mainly comprising reorganization activities and severance costs of DKK 27 million, of which DKK 21 million was related to the severance package for the former CEO. In addition, DKK 8 million of proceeds received in connection with a favorable ruling on an old dispute with the Danish Customs Authority had a positive impact.
Special items related to earnings before tax comprised an additional DKK 38 million of interest received in connection with the above-mentioned ruling. This led to total special items of positive DKK 19 million. Please turn to the next page. Product revenue increased by 3.1% in local currencies. In EMEA and Americas, revenue declined by 1.1% and 3.2% in local currencies, respectively. In APAC, revenue increased by 14.3% in local currencies, driven by strong momentum in China and continued growth across branded channels in the region. Gross margin improved across regions, in particular APAC, supported by transition to direct operations of the Tmall flagship store. Finally, revenue from brand partnering and other activities declined year-on-year. This was primarily driven by declining revenue from the Cisco partnership compared to last year. Please move to the next slide. Turning to cash flow and working capital.
Free cash flow for the quarter was positive at DKK 22 million, reflecting operational performance and working capital developments, as well as a relatively lower level of investments during the quarter. Net working capital decreased by DKK 19 million to DKK 270 million, driven primarily by a reduction in inventory levels, while year-on-year comparisons continued to reflect higher inventory and receivables earlier in the year. Inventories declined by DKK 36 million compared to the end of Q2, reflecting lower inventories following elevated levels earlier in the financial year. Capital resources amounted to DKK 262 million at the end of the quarter, compared to DKK 267 million at the end of Q2. Of the DKK 262 million capital resources, available liquidity was DKK 112 million, which is DKK 5 million lower than at the end of last quarter. Now please move to the next page.
Turning to outlook for the full financial year. As communicated in our company announcement on March 23rd, we have adjusted our outlook for 2025, 2026. This was mainly due to the weak sales performance of Beosound Premiere. In addition, armed conflicts, geopolitical tension, and economic uncertainty have intensified and are expected to impact the rest of the financial year. Consequently, revenue growth in local currencies is now expected to be in the range of -3%- 0%, compared to the previous range of 1%-5%. EBITDA before special items is now expected to be in the range of -3% to -1%. This reflects the adjusted revenue outlook. Free cash flow is now expected to be in the range of -DKK 200 million to -DKK 150 million.
This includes the cash flow received in March related to a favorable customs ruling, a case dating back to 2006, as well as severance costs related to the former CEO. Excluding these items, the underlying cash flow development reflects both the adjusted earnings outlook and the continued focus on inventory and working capital management during the second half of the year. Overall, while the outlook reflects a more cautious view on the remainder of the financial year, our strategic direction remains unchanged. We are focused on strengthening the commercial discipline and execution, which includes ensuring that marketing investments, retail execution, and product launches are better aligned going forward. In connection with the adjusted outlook, we withdrew the mid-term financial ambitions covering the period through 2027, 2028. In the short term, we are tightening the discipline around capital allocation and capacity costs. Securing a sound financial foundation remains non-negotiable.
This means we are sharpening execution and prioritization across the business with clear choices on where and how we deploy capital and capacity. In our mid-term ambitions, we had announced the assumption that annual CapEx will increase by around 30%-40% compared to the level in 2024, 2025. The current CapEx outlook for 2025, 2026 of around DKK 290 million assumes the lower end of that range. Capacity cost was expected to increase by DKK 100 million-DKK 200 million yearly during the period. The current outlook is expected to be around DKK 100 million. With that, I will now open the session for questions.
Thank you, if you do wish to ask a question please press five, star in your telephone keypad. To withdraw your question, you may do so by pressing five, star again. We will have a brief pause while the questions are being registered. The first question is from the line of Poul Jessen from Danske Bank. Please go ahead. Your line will now be unmuted.
Yes. Thank you for taking my question. Just first, a very short one. When you mention about the capacity investments of DKK 100 million, when you look beyond the current year, are you still having DKK 100 million-DKK 150 million, or are you going to the low end for the year? Is it too early to comment on?
Yeah. Thanks, Poul. Well, right now our focus is to manage the operating environment we are in right now and to strengthen our commercial execution and to ensure a healthy balance in our financials. That's what we are focusing on. What it means for the longer term period, we can come back to at a later point in time. We will talk about the outlook for next year when we release our annual report. Other than that, I think the main event before we start talking about the future is the appointment of a new CEO.
Okay. When you say a more proven view on strategy execution, also taking the external events into account, what areas are you holding back on spending? Is it marketing? Is it product development, or is it refocusing opening of stores, or where are you holding back?
Obviously, when we originally announced our mid-term ambitions, we laid out an investment plan for both CapEx and OpEx, which was focusing on retail investments, marketing investments, but also product investments. Given the performance of this year, that was the first year of that original plan has not materialized as expected. We have to scale back on the investments in all of the areas. The precise prioritization discussion, I think I will not disclose in this forum, but of course, it impacts our investment plan broadly.
It's across the board.
Yep.
You mentioned about the Premiere launch that was significantly below. You also had learnings, and it was, as I hear, the cooperation between product launch, marketing, and retail. Can you say something about what are you then changing? I would have assumed this has been on the agenda for a lot. Yeah, several years to optimize these three dimensions. What failed, given that you could totally misinterpret the demand for the product at the price point?
Yeah. I think what we have seen with the launch of Premiere is that our commercial operating model machine is not in a good state as we want it to be in. This is a key focus area for us. I think the Beosound Premiere is a good sort of example of what didn't work. To mention a few things, I mean, the launch was late compared to hitting the right window from a market perspective. We didn't launch with full availability or in the full range of colors that we would like to offer to our clients. The positioning or the shows, the display of the product in the store, didn't tell the story around the product well enough. The marketing campaign surrounding it was not orchestrated well enough. Finally, the price was too high.
The price point was set higher than what was, in reality, the intention of our portfolio structure. That we are correcting now.
That gives me an impression that it failed more or less on all areas. Do you have any idea how it could fail on all those, the delay and placing in stores and marketing and pricing?
I think right now what we're focusing on is to take the learnings from this and work on improving our go-to-market operating model and the execution going forward, so we don't make the same mistakes twice.
Final one for me at this time, not moving on. San Francisco, it opened, I think it was the 8th November, so that means you had it for three months in this reporting. Have you any indication on traffic success, how it's being received and so on? Are you happy with the performance?
Yeah, we're happy with the performance. San Francisco is following our plans right now. The local team is in full swing of building up the local market, in the San Francisco area. When we open our two next stores in California, in both Palo Alto, which is closer to San Francisco, and then subsequently in West Hollywood, we think we have a good business opportunity in California. That's really good. I mean, in the beginning, when you open a new store, you sell mostly on-the-go products because you get more traffic in and you're building the pipeline for selling the bigger systems, which we expect will come into our numbers in the coming quarters.
Okay. I'll step back, and go back to the queue.
The next question is from the line of Niels Leth from DNB Carnegie. Please go ahead, your line will now be unmuted.
Good morning, and thank you for taking my questions. Firstly, could you talk about special items for quarter four? Would you expect any additional special items in your last quarter of this fiscal year? Secondly, can you talk about your pricing policy from here on? Should we expect that the lessons learned with the Premiere product will have any overall effect on your pricing policy? Thirdly, could you just give us a status for your brand partnering, partnerships with HP, Cisco, et cetera? How far are we in the phasing out of some of these contracts? Thank you.
Yep. Let me start with the pricing policy. What we learned with Beosound Premiere does not have any impact on our pricing strategy as such. Our pricing strategy is based on creating a portfolio logic where we have nice natural pricing steps between the different products in a category. When you go from sort of the entry product to the core product to the high-end, more dream products in the top of the pyramid. There's a logic that we want to maintain on the price gaps between these different products. That logic was not maintained in the Premiere launch. That's why we have corrected it. It doesn't change our pricing policy. Generally, on pricing, we are expecting to be more cautious on future price increases given the consumer sentiments at the moment.
On the other hand, there will also be, I would assume, or there's a risk of seeing price increases that we will do to adjust for the increased production cost and increased input cost, as geopolitical tensions will have an impact on inflation rates for what we procure as well. It will be more pricing in depth, sort of more tactical pricing increases we will see in the future, I think. At least as the world is right now. On special items for Q4, we don't guide on special items for Q4, so I will not comment further on that. Then finally on brand partnerships. What we see here in this financial year, as we said all along, is that the HP phasing out, which is phased out now. We don't have any revenue on HP in Q3. It's gone.
If you look at last year versus this year and take HP and TCL together, then we are flat from last year to this year on these two contracts together. Then TCL will start creating growth in that part of our business for next year. When you look at the brand partnering segment this quarter, the primary reason for us being lower than last year is due to Cisco, which is a product-related revenue with product margin and not licensing margins.
Great, thank you. Can you just remind us if you are reliant on any memory chips in your products?
Yes, we are reliant on memory chips in our products. In all our products, we are reliant on memory chips of different nature and of different complexity. I can confirm that.
Price increases on memory chips, would that be visible on your gross margin going forward?
Yes, that will have an impact on our gross margin. Whether it will be significant, is still too early to say. We have seen in the past quarter that specific memory chip types, we have to pay more for. It's not a significant event right now. We're all reminded of what was the situation in 2021, 2022, 2023 with the big microchip crisis and semiconductor crisis, where it had a huge impact. This is not what we are seeing right now. We are working very closely with our supplier to secure our production lines for the coming 12 months, and we have pretty good success with that. There will be probably pockets where we will see increased prices, and if it becomes material to the numbers, we will of course also inform the market around it.
Finally, can you just remind us how much is freight cost of your total cost base or of sales, and how are you exposed to freight rate increases?
Well, the freight cost typically is part of our cost of goods sold, part of our landed cost in our P&L. Yeah. This is, of course, going to be a little bit off the top of my head, so we probably have to come back on more precise numbers, but I think it's around DKK 100 million in freight costs that we have a year. Right now we are seeing price increases due to the situation in the Middle East, and increased fuel prices that is particularly hitting freight cost on airplanes. I think what we've seen in the last quarter is probably an extra cost of around DKK 500,000, maybe DKK 1 million. It's not significant at this point in time, but it's of course a risk that it could become worse. It's not something we are seeing in the very short term.
To talk about the Middle East, can you just remind us of your exposure to the Middle East?
Yeah. Our Middle East revenue, we talk about the countries that are sort of in the conflict zone. That sort of includes Israel and Saudi Arabia and the Emirates, as some of the main areas for business. We are having roughly DKK 20 million per quarter in revenue. The biggest chunk of that is in the UAE, in the Emirates. Right now it's very difficult to transact in that region. That is impacting us here in Q4, as we also said when we did the announcement in March. We actually know there are customers who still want to buy there, and we have another challenge which is more related to freight, that it's hard to ship to that region. As long as this conflict persists, it will have a negative impact on our numbers.
Okay, thank you. We have a follow-up question from Poul Jessen from Danske Bank. Please go ahead. Your line will now be unmuted.
Yes, thank you. Just following up on the Middle East issue. This was the direct impact.
Yeah.
Are there any indirect ones? I mean that could see higher sales in London or Paris or wherever?
Yeah. Measurable, probably not at the moment. I can come with some anecdotal stories around clients who normally live in the Middle East who now are in London and who are buying more also of our products in Harrods. There is definitely a mechanism there. Whether it would be a material positive for us, I think it's too early to conclude on. On the contrary, I think they'll probably be more likely to have a negative effect on the world economy and consumer sentiment and especially in Asia, where the conflict is making it difficult to get hold of necessities, could also impact sort of the general economic environment in Asia. We've had a good quarter in Asia in Q3. This is of course, something that is worrying us a little bit, how this conflict is going to impact the world economy.
Okay. On tariffs, some discussions about how they are handling the steel and aluminum content on the tariffs to the U.S. that is changing from the value of steel and aluminum to changing to a full product value.
Yeah.
Do you have any thoughts on that, if that's going to impact your exports to the U.S.?
To the best of our knowledge right now, we are not impacted. The reason for that is that the tariffs always links to HS codes and product codes. Before you start talking about the aluminum thing, you need to be in the right HS code to be part of that scheme that they are talking about. It's unclear to us right now that we are part of those HS codes, but it's something that we, of course, are following.
No impact by now?
Not right now.
Okay. U.S., where you had a -16% like-for-like sales. Is that because of the high base a year ago, or can you give some color on what's happening there? If you look at all the luxury brands that has reported in the recent days, U.S. has been the strongest quarter for all of them.
Yeah, I think there are two things. First of all, in our CoCo stores, we have done well in U.S. Our monobrand channel has had a weak quarter, based on less demand and less footfall in our monobrand stores in the U.S. that are in the like-for-like. That's of course excluding San Francisco. Another main point is that, as I said, as part of our strategy, we're doing less and less promotional activities in the eTail channel, also in the U.S. Our Amazon sales is down, and that is taking the like-for-like sales down quite a lot, that we are still retracting promotional activities in eTail to support our brand strategy.
Okay. The strong Chinese sales, how much is that impacted by the Tmall transition to your control?
That's impacting positively in China. We have in general strong sell-out in China in all the channels. It's taking its fair share of that growth.
Okay, it's not Tmall.
It's not Tmall that is doing this one. No, it's not just Tmall, no.
Okay. That was all from my side.
As there are no further questions from the telephone, I will hand it back to you, Nikolaj, for any closing remarks.
Well, thank you everyone for your interest in Bang & Olufsen and for joining today's webcast. If you have any follow-up questions, please don't hesitate to reach out to our Investor Relations team. Thank you all, and have a good day.