Ladies and gentlemen, welcome to the Matas Q3 2019/ 2020 Results Conference Call. For the first part of the call, all participants will be in listen-only mode. Afterwards, there'll be a question and answer session. I'll now hand the floor to CEO, Gregers Wedell-Wedellsborg. Please begin your meeting.
Thank you, Operator. Good morning, everyone. Welcome to our Presentation Covering the Third Quarter of the 2019/ 2020 Financial Year. With me on the call today are our CFO, Anders Skole-Sørensen, and Elisabeth Klintholm, our Head of IR. I will start out with the highlights for the quarter, then Anders will take you through the presentation of our third quarter results, and finally, I will comment on our strategic progress and on the upgraded and revised outlook for this financial year. As with previous quarters, Q3 is impacted by the implementation of IFRS 16. We will comment on the numbers on a pre-IFRS 16 basis in order to be able to make comparisons and explain developments compared to last year. We look forward to taking your questions at the end.
Please turn to slide two. The Christmas quarter truly was a stellar quarter for us. It was the biggest quarter we have ever had. We saw a top-line growth of 7.4%. We saw notably a like-for-like growth of 4.7%. That's the highest like-for-like growth we've seen in Matas in 24 quarters. We saw a record growth even in our biggest quarter on matas.dk of 84%. We also noted a very clear omni-channel effect. More than half of matas.dk customers choose pickup in store, and matas.dk sales therefore generated more than 250,000 store visits.
Please go to slide number three. As for the numbers, the highlights for the quarter were as follows: revenue of DKK 1.173 billion, up DKK 80 million from last year. The EBITDA margin before special items came in at 18.7%, the same level as the year before. Earnings stood at DKK 219 million, up DKK 13 million compared to DKK 206 million in the same quarter of last year.
If you go to slide four, Anders will go through the financials in more detail.
Thank you, Gregers. As already mentioned by Gregers, overall we saw an increase in revenue of 7.4%, and growth was positively impacted by three factors. First of all, Black Friday was the biggest shopping day in all of Matas' 71-year-long history. Secondly, revenue from Firtal was having full effect in the quarter against only about one and a half months of last year. Finally, as already said by Gregers, strong online growth on matas.dk at 84% of course helped overall like-for-like growth. It was a certain underlying like-for-like growth of 4.7%, and it should also be noted that the like-for-like growth was positive in every month of the quarter. As to our physical stores, sales were down year-on-year in the quarter, but only by a little less than 1.5%, which was the lowest rate of decline we've seen this financial year.
If we look at gross margin, the gross margin in the quarter was 43.9%, which was marginally down from 44.0% in the same quarter last year. With Firtal accounting for about 1 percentage point of the gross margin, the underlying gross margin, that is without if we had not acquired Firtal, fell by around one percentage point. This decline was primarily driven by higher campaign activity as well as the ongoing channel shift from our physical stores to online. With higher overall sales, total gross profit for the quarter rose by 7.1% or DKK 34 million, in spite of the marginal drop in gross margin. When we look at costs, the overall operating cost before IFRS 16 rose by a little more than DKK 21 million year-over-year in the quarter.
A major part of the increase was due to added costs from the acquired businesses of Kosmolet and Firtal. All in all, that accounted for just shy of DKK 19 million. In addition, increased activity on matas.dk led to an increase in cost. I will come back to this in a little more detail later. We look at earnings, the EBITDA before special items was up by DKK 14 million, as mentioned, to DKK 219 million. Adjusted profit was DKK 143 million against DKK 140 million in the same quarter of last year. Free cash flow, which I will also come back to, declined DKK 18 million from the third quarter of last year.
We look at the number of transactions for both stores and online, they were up by 2.2%, and the basket size grew by 2.0% or DKK 3.5. Both these numbers are Matas only, i.e., they include matas.dk, but not transactions from the Firtal Group.
Overall in the quarter, we did continue to see traffic moving towards online, where Matas is very well positioned to serve our customers through both matas.dk as well as through the workshops operated by the Firtal Group, such as, for example, helsebixen.dk or made4men.dk. In our physical stores, we continued to see declining footfall, which we were able to partially counter by an increase in the basket size. With that, please turn to slide number five. On this slide, we take a quick look at the category performance. In the third quarter, we saw the trends from previous quarters continuing, with beauty increasing by 6.5% in sales overall. Beauty amounts to 74% of total sales. Mass beauty increased by 6%, and high-end increased by almost 7% in the quarter. The Vital area increased by 13.3%.
The Firtal acquisition here made a big difference, but also more focus on growing the category health. The Material Shop business increased 7.1%. Finally, the small MediCare segment increased sales by almost 19% on the back of the relaunch of Matas MediCare and the higher sales of special skincare products. Please note that the category growth data includes sales from Firtal, which has a positive impact, as Firtal was not fully in the numbers last year, as I mentioned before. I can, however, inform you that even if we strip out all Firtal numbers from the segments, all segments still show growth in the quarter. With that, please turn to slide number six.
On page six, you can see sort of longer-term developments in revenue growth, cost margin, EBITDA margin, and the absolute level of EBITDA. The numbers pretty much speak for themselves, but I just will point to a few salient figures. We are very happy to see that revenue growth is now on a more positive trend than we've seen in recent quarters. We still continue to see something that we've talked about in previous quarters, i.e., a stabilization of the cost margin. Cost, as I already said, we have positive impact from Kosmolet, which is being offset by the channel shift. EBITDA margin is again still declining, but the rate of decline is much lower than we've seen historically, so we are pretty positive on that as well. With that, please turn to slide number seven.
In slide number seven, we're digging a little more into the cost development. As we've already told you, we implemented an efficiency program in the second quarter of this financial year aimed at making sure that costs do not outpace revenue in Matas. The efficiency program was aimed primarily at two goals. Firstly, that wages and other costs at the store level develop in line with sales. Secondly, that the headquarter costs do not outgrow sales. The measures we took mainly affected store operations. Headquarter costs were also targeted. As I mentioned before, in Q3 of this year, overall operating costs before IFRS 16 rose by DKK 21.2 million. Of that, DKK 18.7 million came from the acquired companies Firtal and Kosmolet.
In addition, our efforts to drive online growth also resulted in increased operating costs. We had our new logistics center in Holme-Olstrup up and running at the end of the second quarter of this year.
As I'm sure you are aware, having a facility up and running and running the facility in an optimal way are two very different things. As our logistics director have pointed out repeatedly, it normally takes about a year to get a new big setup like our logistics center in Holme-Olstrup to run fully efficiently. For us, this means that Holme-Olstrup is still on a steep learning curve. While we managed to meet customer expectations both around the largest Black Friday ever and for the remainder of the Christmas quarter, this came at a cost, a cost which showed up both in other external costs and in staff costs.
When the data on this slide shows an increase in both other external costs and staff costs, even after we strip out Kosmolet, Firtal, and special items, what is actually shown is an underlying picture where costs in the stores and in our headquarters, not related to our online business, was falling, but this was more than matched by costs associated with our online operations. The implementation of the efficiency program did help reduce the underlying cost base in the quarter, and we expect it to do so for the financial year as a whole. When we look at the numbers for that financial year as a whole, we expect the efficiency action to reduce the cost base by around DKK 24 million, sorry, DKK 25 million. Furthermore, the benefits of this program will be carried into our coming financial year 2021.
For that, please turn to slide number eight. On slide number eight, we are looking at inventories. If you look at the numbers, then total inventories were up by almost DKK 100 million, DKK 98 million to be precise, in the third quarter compared to the same quarter last year. 2/3 of the increase was driven by the new warehouse and facility, plus the addition of inventories from Kosmolet and, to a lesser extent, increased inventories at Firtal as the business was growing. 1/3 of the increase was due to a management decision to increase inventories to avoid stock-out situations. The ambition for the fourth quarter of this financial year is to lower inventories, and we've already set a number of actions in motion to ensure that we fulfill this ambition.
If you follow us closely, you may already have noticed that we put on a, well, for the customers at least, a better post-Christmas sale than usual, with more products on sale and even discounts. This was obviously good for sales, and it helped reduce inventories. At the same time, it had a one-off negative impact on profitability. With that, please turn to slide number nine.
Slide number nine, we're looking at the cash generation in general. Cash generated from operations amounted to an inflow of DKK 209 million before IFRS 16 in the third quarter. The year earlier period saw an inflow of DKK 337 million. The decrease of DKK 128 million was driven by a decrease in trade payables in Q3 this year compared to a significant increase in trade payables in the year earlier.
Trade payables fell mainly due to the timing of supplier payments around the turn of the year. We paid some of our suppliers earlier than last year because we built up inventory ahead of the Christmas season a bit earlier than we did in the year before. With regard to CapEx, the CapEx in the third quarter was DKK 18 million higher than for the same period last year, primarily due to the investments we made in asset light stores. Cash flow from investment activities fell as a result of one small acquisition in Q3 of this year compared to the larger Firtal acquisition in the year before. As a result, free cash flow fell by DKK 18 million to DKK 110 million in the quarter. With that, I will hand you back to Gregers, where he will talk about strategic progress starting on slide number 10.
Thank you, Anders. I will comment on three of our five strategic pillars. Win online, where our ambition is to go from number three back in May 2018 to being the undisputed market leader. Second, reignite store growth, where we are working to renew and consolidate our store footprint. Finally, the pillar that goes with the open new growth path, the effort we're making to find new revenue streams. Please turn to Slide 11. As for digital, our ambition is to be the undisputed market leader and the first choice for the Danish beauty consumer online as well as offline. In the Christmas quarter, we made a really big leap forward toward that ambition. Our digital business, including Firtal now accounts for 16.2% of our total sales, up from 8.5% last year. As already mentioned, we announced a growth of 84% on matas.dk.
It's a new record, and there's no doubt that we made significant market share gains in the Christmas quarter. That is the seventh consecutive quarter of at least 50% growth on matas.dk. The key factor enabling this growth is the new dedicated online logistics facility, which allows us to make fast deliveries to the customers without disturbing the offline business. As a result, we've seen a significant uptick in customer satisfaction online, and we executed Christmas without logistical issues. I think the slide shows more than anything the progress that we have made in online over the last couple of years. This is from the official annual survey of e-commerce in Denmark. It shows that matas.dk has moved from a rank of number 20 among the most used web shops to a position of number five last year, ahead of some well-known names.
Firtal, and I will return to Firtal in a moment, is delivering according to plan and added a bolt-on acquisition that I will return to in a moment. Please turn to slide 12. In the quarter, we continued our rollout of the Matas LIVE upgrade program for the stores. We now have 22 Matas LIVE stores opened at the end of the quarter, Q3, and we plan eight additional store upgrades in Q4 of 2019/2020. We continue to evaluate the stores on three parameters, the customer response, both qualitative and quantitative. We look at our total share of the local market, and of course, we look at the financials of the investments in store upgrades. We have spent a lot of time in the quarter fine-tuning the concept.
We are testing medium and light upgrades, especially for what we call one-to-one upgrades to the same store renewed. We also look into a lot of operational improvement in the upgraded stores. In the quarter, we saw an improvement in the performance of the Matas LIVE stores relative to Firtal stores. The quarter also confirmed that we should continue to work on store mergers, relocations, and expansions, where we see solid financials from investing in the upgrades. We maintain that we require landlord co-financing. We don't want to be the only ones to invest in the future of physical retail. That increased consolidation of stores is a strategic priority. As for the one-to-one store upgrades, we have a clear picture of what kind of cases are good and which are not so good. Certain store types and locations merit investments.
Again, we require landlord co-financing to do the investments, and we've seen some early results from the medium light upgrades that indicate that we can do the upgrades at a lower OpEx per store. Please turn to slide 13. In the quarter, in our quest to look for new revenue streams, we acquired the Frisørshop, and that's a company that operates two smaller web shops within the professional hair care and beauty segment. The rationale behind this small acquisition is this is really what Firtal is good at. Small bolt-on acquisitions where we can do a rapid integration of the tech, of the organization, and the commercial platform. We actually are on track to completing a full integration of that company into the Firtal Group by the end of Q4.
This kind of case has very tangible short-term cost synergies, and it's a very low-risk case with a good short-term payback. In addition to that, we bought access to the professional hair care market. This is a segment of the beauty industry that we have not historically been strong in. We've had a very low market share for products that are usually sold through salons. We see that some of our online competitors, they have a strong point in that particular segment, so we now have access to that kind of assortment as well. Then finally, as is the case for the total Firtal Group, we now have channels where we can engage in price fighting, if that's the case, with a very low-cost operating model so that we can respond quickly to price situations in the markets.
As for the company that we acquired, it's the smallest company. It's DKK 30 million turnover. It grows above 10%. It is a profitable company even before synergies, and it operates one physical salon in Aarhus, and that is a supplier requirement to be able to carry the products. We paid DKK 15 million for the company, and there is an earn-out of DKK 5 million. Closing was on the 9th of October 2019. Please turn to slide 14.
As for our financial targets for 2019/2020, we have made some small adjustments. We have updated our estimates for overall revenue growth and like-for-like, first in connection with the trading update in January in light of more positive sales growth in the Christmas quarter. Now with our Q3 results, we've seen the good momentum from Christmas continue into 2020.
As a result of the financial guidance for the full year 2019/2020 for these two items are: an overall revenue growth of above 5%, previously around 5%, and an underlying like-for-like revenue growth above 1.5%, previously around 1.5%. In Q4 2019/2020, in line with our strategy, we will continue to fuel online sales growth, even though this will lead to short-term margin dilution as sales shifts from stores to online. As Anders mentioned, the logistics facility in Holme-Olstrup is not yet operating at scale, and cost ratios in Holme-Olstrup will benefit from a rapid increase in volume. We have decided to reduce inventories. This is an issue we pay a lot of attention to, and we have decided to clear more overstock than usual in our January sales.
These two factors will have a slight negative impact on the EBITDA margin in the fourth quarter, but we believe they are right and good measures, especially for our medium-term online profitability. Therefore, we specify that our estimate for the EBITDA margin before special items is between 14% and 14.5% for 2019/20, compared to our previous estimate of between 14% and 15%. Our CapEx guidance is unchanged at DKK 150 million-DKK 170 million. Please turn to slide 15.
Summing up, we concluded the first nine months with this good top-line growth as well as like-to-like growth ahead of our expectations. We are very satisfied with our online progress and the positive omni-channel effects that we are starting to see. Our Matas LIVE rollout has touched almost 30 stores at the end of Q4, and we continue to fine-tune the concept. Firtal has completed the minor bolt-on acquisition that I mentioned, adding a new growth option in the professional hair care segment. These were our comments for the quarter and the outlook for the year. We are now ready for Q&A. Operator, I hand the line to you.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's returned to you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Magnus Jensen of SEB. Please go ahead, your line is open.
Morning, guys. Thanks for taking my questions. I have just two to start with. First of all, you talk about that the mergers of stores is sort of a preferred way to deeply upgrade your network. Could you talk about, as I see it, you've done three mergers in this quarter. Can you talk a bit about how much revenue do you lose/maybe win when you do these mergers? That's my first question. The second question, you talked about improving your inventories. What would sort of be a normalized level for you guys when you sort of get it trimmed and optimized? That's my question. Thank you.
All right. Thank you. I will comment on the first question. Anders will take the question on inventories. For mergers, we really have two kinds of cases for mergers of stores. We have cases where we believe that we can capture or even grow revenue in the local market by building one big store rather than two smaller stores. That's one kind of case. The other kind of case is that we see that we can do EBITDA improvements by consolidating two stores. We look at both kinds of cases, and the experience that we've seen from the last couple of quarters is that we're quite right that there are at least two kinds of cases. In some case, we can actually capture more sales in the market by doing a consolidation, and in other cases, it is a purely earnings-focused maneuver.
Anders, can you comment on the inventory?
Yeah, I will. Well, at the inventory level, I think it's fairly obvious that we felt at the end of the third quarter that this was definitely a level too high for our comfort. We're not going to give out a specific number and say it's going to be X percent of turnover, but obviously there is a connection between turnover and inventory levels. At the same time, we also went into the new facility in Holme-Olstrup well knowing that there is a cost associated with shifting the online business out of our existing headquarter facility. That does carry some extra inventory in there, and we knew that was the case, but obviously we will be working continuously to optimize on it. We have absolutely no interest in carrying more inventory than is necessary.
That actually, as we speak, we are in the process of introducing a new system for forecasting the need for goods in our stores, and that actually includes our online store, which hopefully will help us also in optimizing inventory level. I can't give you a precise number, even though of course, I can understand why you'd want to see that.
Thank you. Two follow-up questions to the inventory part. Are there any sort of synergies that you can realize with the Kosmolet Firtal and your own inventory in Holme-Olstrup? That's one question. The other question is when will this new system that you talk about be up and running? Thank you.
The first thing is that at this moment, we have decided to run Firtal as a standalone business. We run, and I think we talked about this earlier on, a very efficient system. Right now we wouldn't add anything by introducing things. As to Kosmolet, that is obviously an area that we're looking into and hopefully we will do some consolidation there. It's not the biggest part of this number, so even though it would be nice to do so, it won't be a huge impact. As to our new system that's being implemented, that is being rolled out and should be fully operational at the end of the summer. Of course, I also have to warn you that there could be some teething problems before that runs optimally.
Thank you very much.
Thank you. Our next question comes from the line of Poul Jessen of Danske Bank. Please go ahead. Your line is open.
Yes. Thank you. A few questions. First on the offline stores, if I do the math on per store revenue, then I get to that for the first time for quite some time, there's increasing revenue per store in the offline space as well. Just see if you will confirm that. About the sale you mentioned for the fourth quarter, which has been, I don't know if it's aggressive or extensive, should that have a year-over-year impact on the gross margin? Or is it at the same level as last year? Finally on the Firtal, you have increase in revenue of DKK 36 million, approximately year-over-year. Can you give an indication on which product segments that they are distributed? Where are the majority? Of course, they are in Vital, but which lines otherwise are they involved in? Thank you.
Okay, we are rapidly doing calculations on your first question, but as Anders mentioned, we saw that the decline overall in stores at a very low level compared to previous quarters, and we have fewer stores, we can't answer exactly to that at this point. As for your question on Firtal, and Anders will take your second question. Firtal is primarily within the Vital Shop, but they also have items in the Mass Beauty segments. With the addition of the new acquisition, we will also have a little bit of revenue in the high end. There is some sales in the other segments, so I'm afraid that's not super helpful. You can count on that the majority is in the Vital Shop.
Yeah. As to the effect of the sale, it is, as I said, a one-off negative impact in fourth quarter gross margin. Of course, it's not huge, but it isn't helpful for our margin. I think that's the way I'd put it.
Then two other questions. The acquisition you just made, can you indicate what kind of margins they are running at currently before you took it over?
We don't disclose that. They are profitable. I think the thing to really take note of is that it's a case. It's not a sales synergy case. We can drive sales to them as well. It is a cost synergy case that will help us towards our ambition of having an online business that is as profitable as our offline business long term. We can take off, and have taken out quite significant cost items in that acquisition integrated with Firtal, who are already operating a very efficient business.
Are they sourcing through official channels, or is it a parallel import?
They are sourcing official and they do some parallel, as does Matas, I should mention once in a while. It's a very limited part of our business, but once in a while, if we can't find an agreement, we will have to resort to that as well to be competitive and have the assortment that the customers are asking us to have.
Yeah, just to add to that is actually, as Gregers mentioned earlier, that's the reason why they're running a hair salon, because the hair salon business is all that great, but that is a part of doing these deals with the suppliers.
Okay. Your final report for...
We just made the count. You're quite right, there is a slight increase per store in the third quarter overall.
Okay. The final question from me about sourcing and the coronavirus. Where are you sourcing from? Are the products coming from Asia or is it produced in Europe? I was just thinking, are there any risk of running out of products here?
We have very limited exposure to the coronavirus on the supply side. One, we have a good level of inventories, and we are sourcing from all over the world. In the short and medium term, we don't foresee any disruptions, but obviously, for the long term, this is an item that we're watching very closely.
Okay. Thank you.
Thank you. Our next question comes from the line of Alexander M. of Nordea. Please go ahead, your line is open.
Thank you for taking my questions. I have a few, I take them one by one. My first question is that you previously talked about that you want to be indifferent to whether you sell something online or offline. Can you maybe talk about the profitability from online here in Q3 and whether you have seen any improvements, especially with the new fulfillment center in Holme-Olstrup? Also, if you can, it would be very interesting to know if your margin on matas.dk is better than on Firtal. That is my first question.
Okay. You're quite right that our strategy is to be indifferent, and we have very concrete and specific building blocks to get to that point. At this point, we are margin dilutive. If we sell something online, it is margin dilutive to the total business. You should note a couple of things in that regard. One is that matas.dk is obviously in a growth phase. We are investing heavily in marketing and in acquiring customers. Second, online business is really a scale business. That is particularly true for the logistics part of the business but actually also for the business model overall. In our minds, it is all about getting the growth and getting to the number one position as fast as possible because we see improving cost ratios as we grow. Typically for the Christmas quarter, as Anders mentioned, Holme-Olstrup is new.
We are very pleased with their ability to fulfill, but it's not operating at scale, so it's not effective right now. As for the margin difference between matas.dk and Firtal, that's not an issue we comment on specifically.
Okay. All right. My second question. Despite all these cost savings underlying, which is primarily offline to my understanding, your other external costs increased by DKK 14 million this quarter in pre-IFRS 16. DKK 12 million is coming from a Firtal in Kosmole t, which means there's DKK 2 million left, and that must be matas.dk. I guess matas.dk is then offsetting your savings in your offline stores.
Correct.
That's right.
Absolutely. That was what I mentioned when we talked about it. You're absolutely right.
I guess that must be a large increase in cost from matas dk .
As we said, we ran up Holme-Olstrup at the end of the second quarter. We had the biggest Black Friday of the company. We had a big Christmas. All of that was run through a new system. That took some costs.
Okay. My third question. Excluding Kosmolet , your gross margin Q3 would be one percentage point lower compared to last year, so you're around 43%. Is that mostly caused by online, or is that caused by more campaigns compared to last year?
It's primarily the shift towards online, but there are some quarter specific items as well. The fact that Black Friday was on a payday, as I think we mentioned in the trading update, obviously made the campaign share of the quarter higher. It's a bit of both.
Okay. All right. Then one more question.
We are seeing a convergence in the gross margin off and online. We are seeing a dynamic picture as to our online profitability. We work on every line in the P&L for our online business.
Okay. All right. That sounds good. With your lower EBITDA margin guidance to 14%-14.5%, we can calculate prime margin for Q4, which is around 10%. Last year in Q4, you had around 11.6%. Last year you had Firtal in your numbers and the Q4 numbers. What is causing this drop going into Q4?
I think there are two very specific issues going on in Q4 that are of a one-off or at least short-term nature. One is, as Anders mentioned, we have decided to reduce inventories and then clear overstock at a higher level than we usually do. That will have a slight negative impact on profitability. The other thing is the Holme-Olstrup operation, which is not yet at scale. This is something, as I mentioned, as we see online growing, the cost ratios in Holme-Olstrup goes down, so we consider that to be a short-term profitability issue.
Okay. The last one for today. This new acquisition of the Frisørshop, will the products, when you order them online, will they be shipped to Matas stores as well? Is that a possibility?
It could be eventually, but at this point, direct to consumer. Obviously, as Anders mentioned, we look at the Firtal case in phases, and right now we think it's better business to let them run independently and address the consumer with their value proposition rather than to mix the two models. Obviously, having delivery to the store, as we do with some Firtal products for the new acquisition as well is a logical next step.
Okay. I guess the DKK 30 million in revenue, that is only online.
That's correct.
Okay. All right. Thank you for taking my questions.
Thank you. Our next question comes from the line of Andre Tolman of ABG. Please go ahead. Your line is open.
Hi. Thanks for taking my question. Just the first one as a reminder, what is the difference really in gross margin between online and offline in percentage points?
We have been shy about giving out that number, and we are still shy about doing that. The reason it's not just shyness, it's also because even though we are very focused on the channel economics, really, if you look at Matas, you should think about us as an omni-channel business, and you should look at our customer economics, whether we are capable of getting a better share of the customer spend in our categories. I think the Christmas quarter was the clearest example that that's what's happening, that we do build a bigger share of the market by being in both channels.
Okay. Just because as I heard before, it is converging as I understand, right? Do you expect it at any point to be the same or will it always be low?
I think the P&L of the online business even long term is different from the offline. It's not necessarily the case that we need it to be exactly the same gross margin to be able to deliver on our ambition to be indifferent. There are lots of other items, especially related to the cost structure of the online business. I can't really tell you exactly how that's going to play out.
Just to add is the fact is that there's probably also, even in the future, going to be a difference between the share of promotional sales online and offline, and that also makes a difference. You can't really necessarily compare them just one to one because you could say high promotional share may have an impact on gross margin.
Maybe a final comment, one piece of our strategy is to offer a bigger assortment online than we do offline. There will be items on matas.dk that we don't have in the stores. Some of those items are high-value items that we sell at a lower margin point, but in absolute terms, will contribute very nicely to gross profit.
Yeah. Good point.
Okay. Cool. Thanks a lot. Just on the next one, in terms of these efficiency improvements in the physical stores, can you maybe just elaborate a bit on what exactly it is that you have been doing and how long you can continue to do that?
Yeah. There are three things that we work on in relation to cost in store. One is what we call continuous improvement. It's really optimizing every single process in the store to free up time from back office time in the store to front office in front of the customer. I think every retailer does that. We do that as diligently as any other. The second is that as we operate the stores to Matas LIVE, we actually adjust our operating model in the stores to allow us to operate the stores more effectively. The third part is consolidation of stores actually also contributes positively to our salary percentages or our effectiveness in the stores. There are those three levels to improve stores.
I think any retailer would say that this is something that we will and can continue to do. Obviously, there's a point at which one single store cannot be operated more effectively, and that's when we consolidate.
Okay. There's a long way to go before you reach that level, as I understand.
I think that the combination of those three things helps us, that it's not just a one-off option to cut costs in stores. If it were only one of them, the first one, it would be difficult at some point, but we have those two other mechanisms as well.
Which one of the three has the biggest potential?
We probably can't say at this point. There's something to go for in every one of those three.
Okay. Just my last question. In terms of store opening and closures, is there any plans during Q4 or next year already?
We haven't set a specific target for how many stores we want. We look at our store portfolio every month and assess whether there are stores that we should close. We maintain that, I think, very sound principle of having very short patience with underperforming stores. We're still in a position where we don't have loss-making stores, and we do preemptively consolidate stores that we think are at risk of going in the red. Going to Q4, the only thing I can say is that we know that we've opened six stores so far, not opened, but modernized six stores so far. We will modernize eight stores in Q4.
Okay. There is more mergers to come, but will there come any of these during Q4?
Let me just check on that. I think we have a few. We'll just check. You can ask another question.
That's my last one.
Okay. I think we have three mergers all in all in Q4.
Have you already done a few of these?
Yes.
Okay, cool. Thanks a lot for taking my questions.
Thank you. We have a follow-up question from Alexander from Nordea. Please go ahead. Your line is open.
Yes, just one question. The obvious guidance to revenue above 5%, is that due to the inclusion of the increased Frisørshop, or when will that be included in the numbers? If you're writing it's end of Q4.
They are included in the numbers, but the main reason for the upgrade is that we upgrade the underlying. We are saying above 1.5% in underlying sales, so it's natural to say that it's also above 5% in total sales. The net effect of the acquisitions in the increased Frisørshop in this financial year are quite limited, to be brutally honest.
Okay. All right. Thank you.
Our next question comes from the line of Claus Egtved from ABN AMRO. Please go ahead. Your line is open.
Thank you. Yeah. First of all, congratulations on the strong growth performance in Q3. I have a few questions regarding the profitability. As I heard you saying that the faster growth online will dilute margins. Is that correctly understood?
Yes. Right now, if we grow more online, it is margin dilutive, that's correct.
Just for one quarter. That is an indication also for the coming years. I know you're not guiding for that.
You shouldn't read that into it. I think what we said is right now it is margin dilutive, and in Q3, there were some specific factors that you should take note of that are of a short-term, one-off nature, specifically the efficiency in the Holme-Olstrup operation.
Okay. Moving into Q4, the interesting guidance for Q4. As I can calculate, at least in the lower end of range, you will see a significant profit decline year-over-year. This is despite that you have your cost savings initiatives, and you also have a positive impact from M&A. I know you have done some extra sale. Can you try to explain a bit more why it is that the profit should decline so much in Q4?
First of all, there is a range, as I'm sure. You should have both the top end and the bottom end of that range. As we mentioned, there are those two specific factors that we think will have a slightly negative impact on EBITDA. That is the decision to clear overstock to reduce our inventories. Second, that Holme-Olstrup, it's a beauty in terms of the customer experience, but it comes at a short-term cost because it is not operating at scale. We see very clearly as scale goes up in Holme-Olstrup, so does our cost per order. That goes down. It is about getting growth fast online. That is the sound medium and long-term strategy.
Sure. I know it's a range. Even in the high decline, as you have a range, I guess you also have to look at the lower end of the range. That is painting a rather steep decline in profitability despite the positive impacts. I'm just wondering what would trigger such scenario?
It is the Holme-Olstrup and the decision to clear stock. That are the two main factors, because we don't see, obviously, in our top line guidance that we're giving, we see the business running smoothly. That's it.
Okay. Can you quantify the effect from clearing the inventory?
Not at this point.
Is it loss-making or just no...?
No, it's not.
No.
Slightly. Some always going to be a few that you would find out there that were loss-making, but we're not going to quantify a number like that. That's not something we are going into.
Sure. Okay. Talking about CapEx, and not so much in Q4, but you have provided a several years ahead CapEx guidance, and you seem to be successful with these upgrades to your new concepts. Should we consider or think about increased CapEx, so you will see more stores being upgraded to new concepts?
We still operate within the framework of our overall strategy that we will invest DKK 600 million in CapEx over the period, excluding acquisition. No, at this point, you cannot make any inference that we are changing that.
Wouldn't it make sense if these upgrades makes a positive impact on your revenue?
At this point, we're looking at the short-term effects of what we're doing with the stores and with online. As we mentioned when we disclosed or when we communicated the strategy, we haven't allocated CapEx fully. The DKK 600 million is not fully allocated. We do reserve the right to allocate CapEx to where we see the best return on CapEx.
Okay, thanks.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. As there seem to be no further questions coming through, I'll hand back to our speakers for the closing comments.
All right. Thank you everyone for taking the time to listen to our Q3 results, thank you for your questions. You can reach out to us if you have any follow-up questions, please contact Elisabeth. Our next results will be our annual report, which is due on the 27th of May 2020. Have a nice day. Bye-bye