Earnings Call: Q3 2020

Feb 27, 2020

Ladies and gentlemen, welcome to the Matas Q3 2019 2020 Results Conference Call. For the first half of the call, all participants will be in listen only mode. Afterwards, there will be a question and answer session. I'll now hand the floor to CEO, Gregor Sveer Williamsburg. Please begin your question. Thank you, operator. Good morning, everyone. Welcome to our presentation covering the Q3 of the 2019 financial year. With me on the call today are our CFO, Anders Golesarsson and Elisabeth Kleinhorn, our Head of IR. I will start out with the highlights for the quarter, then Anders will take you through the presentation of our Q3 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, but 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 2. 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 MAFES in 24 quarters. And we saw a record growth even in our biggest quarter on Matrix DK of 84%. We also noted a very clear omnichannel effect. More than half of Matrix. DK customers choose pickup in store and Matrix. DK sales therefore generated more than 250,000 store visits. Please go to Slide number 3. As for the numbers, the highlights for the quarter were as follows: revenue of $1,173,000,000 up $80,000,000 from last year the EBITDA margin before special items came in at 18.7%, the same level as the year before. Earnings stood at $290,000,000 up $13,000,000 compared to $206,000,000 in the same quarter of last year. If you go to Slide 4, Anders will go through the financials in more detail. Thank you, Gregor. As already mentioned by Gregor, overall, we saw an increase in revenue of 7.4%. And growth was positively impacted by 3 factors. 1st of all, Black Friday was the biggest shopping day in all of Mesa's 70 or 1 year long history. Secondly, revenue from Fiat was having full effect in the quarter against only about 1.5 months of last year. And finally, as already said by Geiger, strong online growth on Resus DKA at 84% of course helped overall like for like growth. It was, as said, an 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 by but only by a little less than 1.5%, which is 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 is marginally down from 44.0% in the same quarter last year. With cost per lead accounting for about 1 percentage point of the gross margin, the underlying gross margin that is without if we had not acquired customer led fell by around 1 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 percent or DKK34 1,000,000 in spite of the marginal drop in gross margin. When we look at costs, the overall operating costs before IFRS 16 rose by a little more than €21,000,000 year on year in total. A major part of the increase was due to added costs from the acquired businesses of Fiatel and CustomLED. All in all, that accounted for just shy of $19,000,000 And in addition, increased activity on Mesos. Dk led to an increase in costs. And I will come back to this in a little more detail later. If we look at earnings, EBITDA before special items was up by $14,000,000 as mentioned to $290,000,000 Adjusted profit was $143,000,000 against $140,000,000 in the same quarter of last year. Free cash flow, which I will also come back to, declined $18,000,000 from the Q3 of last year. We look at the number of transactions in both stores and online, they were off by 2.2% and the market size grew by 2.0 percent or 3.5 percent each quarter. Both these numbers are maintenance only, I. E, they include maintenance. Bk, but not transactions from the Peter Tec group. Overall in the quarter, we did continue to see traffic moving towards online where maintenance is very well positioned to serve our customers through both maintenance, DK as well as through the workshops operated by the PSR groups such as for example, hilisabixin.dk or made from indoor intake. In our physical stores, we continue 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 5. On this slide, we take a good look at the category performance. In the Q3, we saw the trends from previous quarters continuing with beauty increasing by 6.5% in sales overall. Beauty amounts to 74% in total sales. Mass beauty increased by 6% and high end increased by almost 7% in the quarter. Vital area increased by 13.3%. Again, the Viacell acquisition here made a big difference, but also more focused on growing the category. The material business increased 7.1%. And finally, the small Medicare segment increased sales by almost 19% on the back of the re launch of MediCare and the higher sales of special skincare products. Please note that the category growth later includes sales from Flutzel, which has a positive impact as ClearCell was not fully in the numbers last year as I mentioned before. I can, however, inform you that even if we strip out all ClearCell numbers from the segments, all segments still showed growth in the quarter. With that, please turn to Slide 6. On Page 6, you can see sort of longer term development in revenue growth, gross margin, EBITDA margin and the absolute level of EBITDA. Again, of course, all these all special items. 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 a more positive trend that 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 gross margin. Of course, as I already said, we have positive impact from cost of debt, 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 7. Slide number 7, we're digging a little more into the cost development. As we've already told you, we implemented an efficiency program in the Q2 of this financial year aimed at making sure that costs do not outpace revenue in clinics. The efficiency program was aimed primarily at 2 goals. Firstly, that wages and other costs at the store level developed in line with sales and secondly, that the headquarter costs do not outgrow sales. The measures we took mainly affected store operations, but headquarter costs were also targeted. As I mentioned before, in Q3 of this year, overall operating costs before IFRS 16 rose by $21,200,000 Of that, dollars 18,700,000 came from the acquired company, Sviertel and Kostolet. In addition, our efforts to drive online growth also resulted in increased operating costs. We had our new workshop in Mojavec up and running at the end of Q2 of this year. But as I'm sure you are aware, having a facility up and running and running the facility in a positive way are 2 very different things. Our logistics director has pointed out repeatedly, it normally takes about a year to get a new pre setup by our workshop in HomelyVic to run fully efficiently. For us, this means that HomelyVic 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 Safeco. So with the data on this slide shows an increase in both other external costs and staff costs even after we strip out customer lift theater 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 tolling, but this was more than matched by cost associated with our online operations. Thus, 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. And when we look at the numbers for that financial year as a whole, we expect the efficiency actions to reduce the cost base by around 24,000,000 I'm sorry, 25,000,000. Furthermore, the benefits of this program will be carried into our coming financial year 2021. With that, please turn to Slide 8. On Slide 8, we are looking at inventories. If you look at the numbers and total inventories were up by almost $100,000,000, dollars 98,000,000 to be precise in the Q3 compared to the same quarter last year. 2 thirds of the increase was driven by the new web shopping facility, plus the addition of inventories from CosmoLift and to a lesser extent increased inventories at theater as the business was growing. A third of the increase was due to a management decision to increase inventories to avoid stock up situations. The ambition for the Q4 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 deal than usual with more products on sale and EBIT discounts. This was obviously good for sales and it helped reduce inventories, but at the same time, it had a one off negative impact on profitability. With that, please turn to Slide 9. Slide 9, we're looking at the cash generation in general. Cash generated from operations amounted to an inflow of $209,000,000 before IFRS 16 in the 3rd quarter. The year earlier period saw an inflow of $337,000,000 The decrease of $128,000,000 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 payment around the turn of the year. We paid some of our suppliers earlier than last year because we put up inventory ahead of the Christmas season a bit earlier than we did any year before. With regard to CapEx, the CapEx in the Q3 was $18,000,000 higher than for the same period last year, primarily due to the investments we made in the asset light flows. Cash flow from investment activities fell as a result of one small acquisition in Q3 of this year compared to the larger Fearsale acquisition in the year before. As a result, free cash flow fell by $18,000,000 to $110,000,000 in the quarter. With that, I will hand you back to Pejesus, where we will talk about strategic progress starting on Slide 10. Thank you, Anders. I would comment on 3 of our 5 strategic pillars in online, where our ambition is to go from number 3 back in May 2018 to being the undisputed market leader. 2nd, reignite store growth, where we are working to renew and consolidate our store footprint. And finally, the pillar that goes with the open new growth path, the effort we're making to find new revenue streams. So 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. And in the Christmas quarter, we made a really big leap forward towards that ambition. Our digital business, including FiatSaturnau, accounts for 16.2 percent of our total sales, up from 8.5% last year. As already mentioned, we announced a growth of 84% on maters. 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 7th consecutive quarter of at least 50% growth on maters. Dk. The key factor enabling this growth is the new dedicated online logistics facility, which allows us to make fast delivery to 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. And 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 makes us that DKS moved from a rank of number 20 among the most used web shops to a position of number 5 last year ahead of some well known names. Also, Beacel, and I will return to PSL 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 Matrix Life upgrade program for the stores. We now have 22 Matrix Life stores opened at the end of the quarter, Q3, and we plan 8 additional store upgrades in Q4 of 'nineteen, 'twenty. We continue to evaluate the stores on key parameters, the customer response, both qualitative and qualitative. We look at the total 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 for especially what we call 1 to 1 upgrades to the same store renewed. And we also look into a lot of operational improvement in the stores. In the quarter, we saw an improvement in the performance of the Natchez live stores relative to beer stores. And 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 financing. We don't want to be the only ones to invest in the future of physical retail and that increased consolidation of stores is a strategic priority. As for the 1 to 1 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 Sandoz Companies financing to do the investments. And we've seen some early results from the medium light upgrades that indicate that we can do the upgrade at a lower FX per store. Please turn to Slide 13. In the quarter, in our quest to look for new revenue streams, we acquired the Pursuer Shop and that's a company that operates 2 smaller web shops within the professional hair care and beauty segment. The rationale behind this small acquisition is this is really what SDSN is good at, small boat on acquisitions where we can do a rapid integration of the tech of the organization and the commercial platform. So we actually are on track to completing a full integration of the company into the peer to peer 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. And 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. And then finally, as is the case for the total theater 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 market. As for the company that we acquired, it's a smallest company, it's DKK30 million turnover. It grows above 10%. It is a profitable company even before synergies and it operates 1 physical salon in Aarhus and that is a supplier requirement to be able to carry the products. We paid a DKK15 million for the company and there is an earn out of DKK5 million closing was on 9th October 2019. Please turn to Slide 14. As for our financial targets for 20 nineteen-twenty, we have made some small adjustments. We have updated our estimates for overall revenue growth and like for like, 1st in connection with the trading update in January in light of more positive sales growth in the Christmas quarter. And now with our Q3 results, we've seen a good momentum from Christmas continue into 2020. As a result, our financial guidance for the full year 2019 'twenty, but these two items are an overall revenue growth of above 5% previously, around 5% and underlying like for like revenue growth above 1.5%, previously around 1.5%. In Q4 'nineteen-'twenty 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 shift from stores to online. Also, as Anders mentioned, the logistics facility in Homileplague is not yet operating at scale and cost ratios in Humlaverk will benefit from the rapid increase in volume. Also, we have decided to reduce inventories. This is an issue we pay a lot of attention to, we have decided to clear more overstock from usual in our January sales. These two factors will have a slight negative impact on the EBITDA margin in the Q4, 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% 14.5% for 20 19-twenty 20 compared to our previous estimate of between 14% 15%. Our CapEx guidance is unchanged at 100 and 50,000,000 to 170,000,000 dollars Please turn to Slide 15. Coming up, we completed the 1st 9 months with good top line growth as well as like for like for like ahead of our expectations. We are very, very satisfied with our online progress and the positive omni channel effects that we're starting to see. Our Macy's live rollout has touched almost 30 stores at the end of Q4, and we continue to fine tune the concept. And PSL has completed the minor Holderna acquisition that I mentioned, adding a new growth option in the professional healthcare segment. These were our comments for the quarter and the outlook for the year. We are now ready for Q and A. Operator, I hand the line to you. Thank you. Our first question comes from the line of Magnus Jensen of SEB. Please go ahead. Your line is open. Good morning, guys. Thanks for taking my questions. I have just 2 to start with. First of all, you talk about that the mergers of stores is sort of a third way to typically upgrade your network. And could you talk about as I see it, you've done 3 mergers in this quarter. Can you talk a bit about how much revenue do you lose, maybe 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. All right. Thank you. I will comment on the first question. Anders will take the question on inventories. So for mergers, we really have 2 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 1 big store rather than 2 smaller stores. That's one kind of case. And the other kind of cases that we see that we can do EBITDA improvements by consolidating 2 stores. We operate both kinds of cases. And the experience that we've seen from the last couple of quarters is that and we're quite right that there are these 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? Yes. I will. Well, at the inventory level, I think it's fairly obvious that we felt at the end of the Q1 that this was definitely a little too high for our content. Now we're not going to give out a specific number and say it's going to be X percent of turnover, but obviously there's a connection between turnover and inventory levels. And at the same time, we also went into the new facility in Munich well knowing that there is the 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. And that's actually as we speak, we are in the process of introducing a new system for forecasting the needs for goods in our stores and that actually includes our online store, which hopefully will help us also in optimizing inventories. I can't give you a precise number even though, of course, I can understand why I'd want to see that. Thank you. Two follow-up questions just to the inventory part. Are there any sort of synergies that you can realize with the Kasmolevian filter and your own inventory in homelypek? That's the one question. And the other question is, when will this new system that you talk about be up and running? Thank you. Yes. The first thing is that we at this moment, we have decided to run Seacel as a standalone business, and I think we talked about this earlier on, a very efficient system. So right now, we wouldn't add anything by introducing things. As to cost of debt, that is obviously an area that we're looking into and probably 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, the team implemented that is being rolled out and should be fully operational at the end of the summer. But of course, I also have to warn you that there could be some cheating problems before that runs up to you. Thank you very much. Thank you. Our next question comes from the line of Paul Newsome 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 has increasing revenue per store in the offline space as well. Just see if you will confirm that. Then about the sale you mentioned for the Q4, which has been I don't know if it's aggressive or expensive, should that have a year over year impact on the gross margin or is at the same level as last year? And then finally, on the retail, you have increased revenue of €36,000,000 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 VITEL, but which lines otherwise are they involved in? Thank you. Okay. We're rapidly doing calculations on your first question. But as Anders mentioned, we saw the decline overall in stores at a very low level compared to previous quarters. And we have fewer stores, but we can't answer exactly to that at this point. As for your question on Firthal, and Anders will take your second question. Fearsal is primarily within the vital space, but they also have items in the mass beauty segments. And with the addition of a new acquisition, we will also have a little bit of revenue in the high end. And there is some sales in the other segments. So I'm afraid that's not super helpful, but you can count on that the majority is in the Vital category. Yes. As to the effect of the sale, it is, as I said, a one off negative impact in Q4 gross margin. And of course, it's not huge, but it isn't helpful for margin. I think that's the way I put it. And then a 2 other question, the acquisition you just made. Can you indicate what kind of margins they're running at currently before you flip it over? We don't disclose that. They are profitable. And 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, but 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. So we can take off and have taken out quite significant cost items in that acquisition integrated with Geertel, who are already operating a very efficient business. And are they sourcing through official channels or is it parallel imports? They are sourcing official and they do some parallel. As does make us, I should mention, once in a while. It's a very, 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. Yes. Just to add to that, that is actually, as Greg 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 having these deals to be suppliers. Okay. And you're And you're quite right. We just made the call. You're quite right. There is a slight increase per store in the Q3 overall. Okay. And then final question for me about sourcing and the coronavirus. Where are you sourcing from? Is the product or are the products coming from Asia or is it produced in Europe or shutting out any risk of running out of products here? We have very limited exposure to the coronavirus on the supply side. 1, we have good level of inventories, and we are sourcing from all over the world. So in the medium 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. Thank you. Our next question comes from the line of Alexander M of Nordea. Please go ahead. Your line is open. Yes. Thank you for taking my questions. I have a few and I'll take them 1 by 1. So 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 new fulfillment center in Krumlovik? And also, if you can, it would be very interesting to know if your margin on MetairSkye is better than on the future? That is my first question. Okay. You're quite right that our strategy is to be independent, 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. But you should note a couple of things in that regard. One is that Macers DK is obviously in a growth phase. We are investing heavily in marketing and in acquiring customers. 2nd, online business is really a scale business, and that is particularly true for the logistics part of the business, but actually also for business model overall. So 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. So typically for the Christmas quarter, as Anders mentioned, Home Leveque is new. We are very, 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 Matrix. DK and CSL, that's not an issue we comment on specifically. Okay, all right. And then my second question. So despite all these cost savings underlying, which is primarily offline to my understanding, Your other external costs increased by €14,000,000 this quarter in pre IFRS 16. And €12,000,000 is coming from a few foreign customer nets, which means there's €2,000,000 left, and that must be the MACD ks. So I mean, I guess, HPC is offsetting your savings in your offline stores? Correct. Absolutely, that was what I mentioned when we talked about it. You're absolutely right. So I guess there must be a large increase in cost from Chromatic CKs? As we said, that was we ran up home effect at the end of the second quarter. We had the biggest Friday of the company. We had a big Christmas. All of that was run through a new system that took some costs. Okay. All right. Then my third question, so excluding customer customer leverage, your gross margin would be 1 percentage point lower compared to last year, so you're around 4% to 3%. 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 is 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. So it's a bit of both. Okay. And then one more question. We are seeing a convergence in the gross margin of an online. So we are seeing dynamic picture as to our online profitability. We work on every line in the P and L for our online business. Okay. All right. That sounds good. And then with your lower EBITDA margin guidance to 14% to 14.5%, then we can calculate the implied margin for Q4, which is around 10%. And last year in Q4, you had around 11% to 6%. And also last year, you had fear in your numbers in the Q4 numbers. So what's causing this drop in going into Q4? I think there are 2 very specific issues going on in Q4 that are of a one off or at least short term nature. 1 is, as Anders mentioned, we have decided to reduce inventories and then clear overstock at a a higher level than we usually do, that will have a slight negative impact on profitability. And the other thing is the home to take operation, which is not yet at scale. And this is something, as I mentioned, as we see online growing, the cost ratios in home to be goes down. So we consider that to be, obviously, a short term profitability issue. Okay. Thank you, Faengs. And then the last one for today. So this new acquisition of the Inclusive Shop, will the products when you order them online, will they be shipped to major stores as well? Is that a possibility? It could be eventually, but at this point, at this point, it's direct to consumer. But obviously, as Anders mentioned, we look at the theater case in phases. And right now, we see we think it's better business to let them run independently and address the consumer with their value proposition rather than to mix the models. But obviously, having delivery to the store, as we do with some theater products for the new acquisition as well is a logical next step. Okay. And I guess that $30,000,000 in revenue, that is only online? That's correct. And our next question comes from the line of Andre Thalmann of KBG. Just the first one as a reminder. What is the difference really in gross margin between online and offline in percentage points? So we have been shy about giving us that number, and we are still shy and shy about doing that. And the reason it's not just China, it's also because even though we are very focused on the channel economics, really if you look at Matrix, you should think about us as an omnichannel 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. And I think the business 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. Okay. But yes, because as I heard before, it is converging, as I understand, right? So do you expect it at any point to be the same or will it always be low? I think the P and L of the online business even long term is different from the offline. And so it's not necessarily the case that we needed 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. So I can't really tell you exactly how that's going to play out. I'd say also just to add, 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. So you can't really necessarily compare them just once more because you could say that higher promotional share may have an impact on gross margin. And maybe a final comment. One piece of our strategy is to offer a bigger assortment online than we do offline. So there will be items on Macy's because 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. 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? Yes. So there are 3 issues or 3 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. Every retailer does that. We do that as diligently as any other. The second is that we as we operate the stores to Matrix Live, we actually adjust our operating model in the stores to allow us to operate the stores more effectively. And the third part is consolidation of stores actually also contribute positively to our salary percentage or effectiveness in the stores. So there are those three levels to improve stores. And I think any retailer would say that this is something that we can 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. But there's a long way to go before you reach that level, as I understand. Yes. I think that the combination of those three things helps us that it's not just a one off option to cost in stores. If we're only one of them, the first one, it would be difficult at some point, but we have those 2 other mechanisms as well. And which one of the 3 has the biggest potential? We can't probably can't say at this point. There is something to go for in every one of those 3. Okay. And then just my last question. In terms of store opening and closures, is there any plans during Q4 or next year already? So we don't have we haven't set a specific target for many stores we want. We look at our store portfolio every month and assess whether there are stores that are that we should close. And we maintain that, I think, very sound principle of having very, very short patience with underperforming stores. So we're still in a position where we don't have loss making stores, and we do the doors making stores. And we do pre emptively consolidate stores that we think are at risk of going in the red. So in Q4, the only thing I can say is that we know that we have opened 6 stores so far, not opened, but modernized 6 stores. So far, we will modernize 8 stores in Q4. Okay. But there is I mean, there is more mergers to come, but will that 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. Yes, I think we have 3 mergers all in all in Q4. And have you already done a few of these? Yes. And we have a follow-up question from Alexander from Nordea. Please go ahead. Your line is open. Yes. Just one question. So you update your guidance to revenue above 5%, is that due to the inclusion of the infrastructure shop? Or when will that be included in the numbers? I think you're writing it's end of Q4. They are included in the numbers, but the main reason for the upgrade is that we operate the underlying, we're saying about 1.5% in underlying sales. So it's natural to say that it's also about 5% in total sales. And the net effect of the activities in Dimpushka in this financial year are quite limited to be brutally honest. Okay. All right. Thank you. And our next question comes from the line of Karl Ekmer at Nordea. Please go ahead. Your line is open. Thank you. Yes, 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. That's right now, if we grow more online, it will be this margin dilutive is correct. So just for 1 quarter, so that is an indication also for the coming years. Is that I know you're not guiding to that. No, no, no, no. You shouldn't read that. 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 ownership operation. Okay. Then moving into Q4, the interest rate guidance for Q4. So as I can calculate, then at least in the lower end of range, you will see a significant profit decline year over year. I think despite that you have your cost savings initiatives and you also have a positive impact from M and A. And 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, so you should look both at the top end and the bottom end of that range. But as we mentioned, there are those 2 specific factors that we think will have a slightly negative impact on EBITDA. And that is the decision to clear overstocks to reduce our inventories and second, that Home and Dec comes, 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. And we see very clearly as scale goes up in Hummelweg, so does our cost per order that goes down. So it is about getting growth fast online. That is the sound medium and long term strategy. Sure. But I mean, I know it's a range, but even in the high decline. And as you have a range, I guess, Walter had to look at the lower end of the range and that is painting a rather steep decline in profitability despite the positive geopolitical impacts. I'm just wondering what would trigger such scenario. It is the home and effect in the decision to clear stock that are the 2 main factors because we don't see, obviously, in our top line guidance that we're giving, we see the business running smoothly. So 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, no, no. Slightly some always going to be a few that you would find out there to a loss making, but we're not going to quantify another like that, Claus. That's not a part of another piece we're going into. Sure. Okay. And then talking about CapEx and not so much in Q4, but you have provided a few 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 CHF600 1,000,000 in CapEx over the period, excluding acquisitions. So no, at this point, you cannot make any inference that we are changing that. But 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. And as we mentioned when we communicated the strategy. We don't we haven't allocated CapEx fully. So the $600,000,000 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. As there seems to be no further questions coming through, I'll hand back to our speakers for the closing comments. Thank you, everyone, for taking the time to listen to our Q3 results, and thank you for your questions. You can reach out to us if you have any follow-up questions, and then please contact Elizabeth. Our next results will be our annual report, which is due on the 27th May, 2020. Have a nice day. Bye bye.